Hedge funds account for around 50% of French spread blowout, Fidelity says
TLT•Fidelity fixed-income CIO Marion Le Morhedec said hedge fund activity accounts for probably 50% of the movement in French bond spreads. The premium on French 10-year borrowing costs over Germany reached 150 basis points, up roughly 50 basis points in a week.
1. Hedge funds drive activity
Hedge funds have played a major role in the recent sell-off in French government bonds, Le Morhedec said, citing their growing presence in the regional market. She estimated they account for probably 50% of current activity in the spread.
2. French borrowing premium rises
The premium on French 10-year borrowing costs over Germany reached 150 basis points on Friday, up roughly 50 basis points in a week. That puts it on course for its largest week-on-week rise since November 2011, LSEG data showed.
3. ECB support seen as remote
Le Morhedec said the market was testing France's political situation and urging politicians to be careful with the budget, but Fidelity was not worried about a massive disaster. Market participants view use of the ECB's Transmission Protection Instrument to support French bonds as a remote possibility because France does not meet several key criteria on public finances and deficits.
