Last week we looked at French 10-year bonds trading around 150 basis points over German Bunds, with finance minister Roland Lescure trying to get a 5% deficit budget through a fragmented parliament. Non-residents hold 57.5% of the debt, and investors were already demanding a higher yield.
Since then the market has moved further. On October 22 the French 10-year OAT pushed above 5% for the first time since 2002, briefly touching around 5.08–5.09%. The spread over Bunds widened to roughly 160–168 basis points, the widest since late 2011. For a short period French 10-year yields also sat above equivalent US Treasuries, something that had not happened since 2013.
Lescure has kept the same line. On October 21 he said the government still has the tools to pass a budget targeting a 5% deficit, pointing to Article 49.3 and budgetary decrees as the available guardrails if parliament cannot agree. The formal vote on the revenue package has been delayed, and further protests have been called. Moody’s is due to publish its review of France on October 23.
The political constraint has not changed, but the price of the debt has. Our original story noted that investors were still demanding a higher yield; that demand has now taken the 10-year through 5% and the spread back to levels last seen during the eurozone crisis.
See Also:
Why Is France’s Debt Too Heavy for Roland Lescure to Lift? | Disruption Banking
Andrew Samu
Andrew Samu, Editor-at-Large at Disruption Banking, shapes the publication’s global coverage of banking, capital markets and digital assets. Based at London’s Level39, he combines market analysis with a strong commercial perspective, informed in part by his role as Commercial Director at Verita HR.
