EUR/USD Intermarket: iTraxx Crossover index suggests Le Pen fears are overdone

EUR/USD pair fell from 1.0829 (Feb 2 high) to 1.0494 (Feb 2 low) as the Franco-German yield spread widened in response to heightened odds of Le Pen victory in French elections. 

Le Pen is widely seen as a threat to the EU, thus, demand for the safe haven German bunds rose, while French debt was offered. The 2-yr German Bund yield hit a fresh record low of -0.92% last week. 

However, there are no signs of stress in the iTraxx crossover index of corporate credit. Usually, signs of stress are more pronounced in the corporate credit market. The index has remained flat lined near 300. In 2011-12, the index was near 600 levels. 

The divergence between the government bond yields and corporate credit suggests the Le Pen fears may have been overdone. This may explain the recovery in the EUR/USD from 1.0494 to 1.06 levels.