French and Italian debt risk premiums set for weekly decline
TLT•French and Italian government bond risk premiums were set for weekly declines after rising sharply the previous week. The French-German yield gap was last at 135.5 basis points, while the Italian-German gap was 107.64 basis points.
1. French spreads ease
The yield gap between French bonds and German Bunds was set to fall 4.5 basis points for the week, after rising 34 basis points the prior week. It was last at 135.5 basis points, down from 158.67 basis points last Friday, its highest level since November 2011. Marine Le Pen pledged steeper spending cuts if she wins next year’s French presidential election; UBS economist Arend Kapteyn said French fiscal concerns had eased somewhat as the government and Le Pen’s party responded to market pressure with greater fiscal discipline.
2. Italian debt gains
Italy’s spread over Bunds was on track to fall 5 basis points for the week after jumping 25.5 basis points, and was last at 107.64 basis points. Italian bonds led a recovery in European government bond spreads on Thursday after Prime Minister Giorgia Meloni secured final approval for electoral reform. Germany’s 10-year yield fell 2 basis points to 3.47%, while money markets scaled back bets on European Central Bank tightening.
