Macro
France's 10-year borrowing cost rises above the US for the first time since 2013 as budget doubts deepen
The gap between French and German 10-year yields widened to about 173 basis points, the most since 2011, a day before Moody's is due to review France.
HedgeWeekly News Desk ·
France's 10-year government bond yield rose to 5.142% on Thursday, its highest level since 2002 according to LSEG data cited by Dow Jones Newswires, and moved above the yield on 10-year US Treasuries for the first time since 2013. The Treasury yield moved the other way, falling 7.3 basis points to 5.072% as equities slid and traders pared bets on a Federal Reserve hike at next week's meeting.
Germany's 10-year Bund yield fell 5.4 basis points to 3.371%, stretching the French premium over Germany to about 173 basis points, the widest since the euro-zone debt crisis in 2011. Stress spread beyond government debt: the iTraxx Europe Crossover index of high-yield credit risk rose to 329 basis points, its highest in nearly seven months. The CAC 40 fell 1.5% and the STOXX 600 lost 1.1% by midday in Europe, according to RTTNews.
The selling reflects doubts that France's fragmented parliament can pass a 2027 budget that aims to cut the deficit to 5% of GDP from 5.4%, against a backdrop of violent protests. The National Assembly has pushed its vote on the revenue section of the bill to October 27, with more than 2,000 amendments outstanding. Finance Minister Roland Lescure said on Wednesday that the government still had tools to get a budget through, including Article 49.3 and budgetary decrees. Non-residents hold 57.5% of French government debt, according to Disruption Banking.
Why it matters: French paper now pays more than US debt at the 10-year point, a reversal that funds holding OATs, French banks or euro credit cannot ignore. UniCredit's Marco Valli said French spreads were still well short of the levels that have worried the European Central Bank before; for comparison, Italian spreads over Bunds were around 200 to 250 basis points when the ECB launched its Transmission Protection Instrument. Federated Hermes' Mitch Reznick noted that bond stress is now feeding into risk appetite and corporate credit spreads. The next tests are Moody's review of France, due October 23, and the October 27 revenue vote.