Marine Le Pen on June 30. 
The CAC 40 Index trimmed its losses in afternoon trading, ending the session down 0.3% after dropping as much as 1.1% earlier.
French assets have been roiled by the prospect of Le Pen’s party winning an absolute majority, which would make it easier to increase public spending. The greater spending plans of a leftist coalition inspired even greater fear in markets, though its second place in Sunday’s initial vote has eased some of those concerns.
Read more: Le Pen Seeks Majority as French Rivals Rush to Pull Candidates
Bonds gained globally on Tuesday afternoon, helped by Federal Reserve Chair Jerome Powell’s remarks that the latest data is suggesting the disinflation trend has resumed. In Europe, Italy’s yield spread over Germany closed four basis points tighter at 146 basis points, the narrowest since mid June.
Christine Lagarde reiterated that the European Central Bank is “attentive” to the bond market, while declining to comment on the election fight underway in her home country of France.
Volatility in French assets is set to remain high this week as political analysts try to parse how citizens might vote if a candidate they previously backed is no longer running. Fresh scrutiny on France’s bloated deficit is also likely to limit the extent to which the spread can tighten, with investors including Carmignac arguing such a repricing was long overdue.
“Especially during these times of great uncertainty, I try not to read too much even in three basis point moves,” said Benoit Gerard, rates strategist at Natixis SA. He sees the spread fairly valued at around 60 to 70 basis points, and says it could climb to as high as 120 basis points in the event of an absolute majority for the National Rally.