| LONDON, March 17
LONDON, March 17 The volume of European
government bonds changing hands this year has risen by as much
as 86 percent as uncertainty surrounding general elections,
Britain's exit from the European Union and euro zone monetary
policy has deepened, data on Friday showed.
The most dramatic rise has been in French sovereign bonds
ahead of the presidential election. Far-right, anti-immigration
candidate Marine Le Pen has pledged to take France out of the
euro should she win the second round run-off vote in May.
That remains a distant prospect, according to opinion polls.
But it's not a negligible risk for investors, reflected in the
burst in trading volume.
The average daily volume of French OATs trading so far this
year is 14.2 billion euros, up 86 percent from the daily average
last year, according to Trax, a subsidiary of MarketAxess.
That far exceeded the growth in UK gilts and German Bunds
trading, which has still been notable.
"We are seeing significantly higher activity across UK,
German and French government bonds in 2017," said Scott Eaton,
chief operating officer of MarketAxess Europe.
"With the uncertainty that Brexit brings, combined with the
fast approaching French election and rising inflation in
Germany, investors continue to experience volatility in bond
markets," Eaton said.
The average daily volume of German bond trading is up 28
percent so far this year to 16.4 billion euros compared with
last year's daily average, while gilt volume is up 12.6 percent
to a daily average of 22.7 billion pounds, Trax said.
The possibility of Le Pen winning in France has prompted
sharp swings in the euro's exchange rate and bond yields. Last
month, the premium investors demand for holding French OATs over
German Bunds rose to its highest in over four years.
The euro and German bond yields have risen in recent weeks
on the back of rising inflation opening up the possibility that
the European Central Bank could raise its deposit rate far
sooner than markets had previously anticipated.
Euro zone money markets on Friday showed around an 80
percent chance that it could be lifted in December, up from a 60
percent chance a week ago.
Meanwhile, the self-imposed, end-March deadline for UK Prime
Minister Theresa May pulling the formal trigger for Brexit is
looming, a reminder for investors of just how uncertain the path
ahead is for the British economy.
If that weren't enough for gilt traders, the Bank of England
is having to juggle rising inflation with the expected negative
economic impact of Brexit, and Scotland's first minister Nicola
Sturgeon this week proposed another independence referendum.
Trax provides post-trade services for around two-thirds of
all fixed-income transactions in Europe.
(Reporting by Jamie McGeever; Editing by Jeremy Gaunt)