Investors pick new darlings and duds as selloff rocks Europe's bond market
TLT•Investors are selling French and other European sovereign debt they view as risky and seeking German, Dutch and Swiss bonds. France’s 10-year yield rose 70 basis points in September, while its spread over Germany reached almost 160 basis points last week.
1. France faces selling
France is at the centre of investor concerns over its large budget deficit and the 2027 presidential election. Its 10-year bond yield rose 70 basis points in September to its highest since 2002, and the government said the deficit would exceed its 5% target. France plans to sell a record €340 billion of bonds in 2027.
2. Contagion concerns
Italy’s 10-year yield gap over Germany widened to 130 basis points last week from 80 a month earlier. Italy’s cabinet said its deficit is set to rise above the European Union’s 3% ceiling, while its debt-to-GDP ratio is 138.6% and expected to overtake Greece’s this year. Investors are also watching Spain as a test of whether concerns about France spread to other markets.
3. Safe-haven demand
German 10-year yields fell 17 basis points last week as investors sought safety, while Dutch, Swiss and Swedish yields also declined. French bonds have been sold in favour of German and Japanese debt, according to an asset manager cited in the article. Britain’s 10-year gilt yield rose 36 basis points in September, around half the move in France.
