The euro is strengthening against the dollar and stock markets around the world are rising after the first round of the French parliamentary election.
The market is breathing a sigh of relief as it does not appear that the far-right party National Rally – which is expected to become the largest party – will gain its own majority.
The yield gap is about a risk premium that investors want to have for lending to the French state, which already has large deficits and is feared to face even greater fiscal problems with a more radical financial policy line.
European stock markets have also been pressured by concerns about the uncertain situation in French politics.
The election is being held after President Emmanuel Macron dissolved the French parliament following major setbacks in the EU election in June.
"The voter turnout – the highest in 25 years – may indicate that Macron succeeded in mobilizing centrist voters to block Le Pen," writes SEB's chief strategist Olle Holmgren in a comment.
"But the uncertainty is very great," he adds.
The second and decisive round of the election will be held on Sunday, July 7.
