French bond pain puts euro zone's weak links on notice
TLT•French 10-year yields topped 5%, their highest in 24 years, while Belgium’s 10-year borrowing premium over Germany reached 109 basis points, a 14-year high. Bond-market pressure is also drawing attention to Italy and Greece.
1. French yields climb
French 10-year bond yields topped 5% on Thursday, reaching a 24-year high. Their premium over German Bunds neared 180 basis points, the widest since the 2011 euro zone debt crisis. A large fiscal deficit, political stalemate in Paris and civil unrest have added to pressure on French bonds.
2. Belgium faces pressure
Investors are also focusing on Italy, Belgium and Greece. Belgium’s 10-year borrowing premium over Germany reached 109 basis points, its highest in 14 years, while its borrowing costs rose as much as 12 basis points to 4.54%, the highest since early 2012. The cost of insuring Belgian debt against default reached nearly 39 basis points, its highest since April 2020; Belgian and French credit default swap costs have more than doubled in the past month.
3. Italy back in focus
Italian yields rose 14 basis points this week to 4.616%, near early October’s three-year highs. An election next year has cast doubt on Rome’s plans to reverse the rise in public debt, while protests have focused on housing costs, fuel prices and cost-of-living pressures. BlueBay Asset Management strategist Mike Bell said the French-German yield gap could exceed 2%, though he did not expect it to reach the levels seen between Germany and Italy or Spain during the euro zone debt crisis.
