Hamon beats Valls to be Socialist candidate in France's presidential race

Leftwinger Benoît Hamon beat centrist former Prime Minister Manuel Valls to be the Socialist party’s candidate in the race to be the next President of France, while the country's 10-year bond yields leapt to their highest level since September 2015.

Investors have been sizing up the presidential race as since September as French yields have been steadily rising, with eurozone inflation also creeping up.

Hamon won more than 58% of the vote, compared to 42% for Valls in the second round of the Socialist party's primary on Sunday, which is seen a boon to the left and repudiation of President François Hollande.

Hamon was sacked from Hollande’s government as education minister after criticising his liberalising economic policies, which Valls was the architect of.

Recent polls has shown that no Socialist candidate will make it to the final round for the presidency in May, with the eventual run-off between centre right Les Republicains candidate François Fillon and Marine Le Pen from the far-right Front Nationale.

With Valls dropping out, it has left the centre open for Emmanuel Macron, the former finance minister who is running as independent and who has been making ground recently, who has also been boosted by the recent woes of Fillion who has been countering allegations that his misused public funds to pay his wife’s salary.

Investors have been guarded about the election outcome in light of the Brexit vote in the UK and Trump’s electoral victory in the US, as Le Pen has said she would hold a referendum on France’s membership of the EU, leave the euro and no longer meet the bloc's spending targets, which has led to increasing nominal borrowing costs for France at a faster rate than Germany.

Analysts at Citi said that Macron could be a surprise package in 2017. It said that it maintains the prediction that Fillon would win based on the economy on the assumption that real gross domestic product (GDP) will grow by 1.4% in 2017 and 1.7% in 2018, after average 1.1% in 2015-16, with voters focusing on unemployment, security and social policies, but said that Macron could win based on reforming the EU.

Citi maintained that there was a low probability of a Le Pen victory given the composition of the electorate and the two-round voting system.