The yield on the French ten-year bond reaches 5%, its highest level since July 2002. The Spanish risk premium stands at 67.33 basis points.
French public debt is once again under pressure in the markets. According to Infobae, the yield on the French ten-year sovereign bond has reached 5%, its highest level since July 2002, while the risk premium against Germany has exceeded 170 basis points, the highest since November 2011.
In the secondary market, the interest demanded on French debt has reached 5.1415%, with a differential of 175 basis points against the equivalent German bond. This rise increases the cost of financing for the French state and may place further pressure on the economy, from public budgets to credit for businesses and households.
The escalation is contributed to by rising oil prices, concerns about inflation, and the disturbances recorded over the weekend. Investors are also awaiting a decision from Moody's regarding the solvency of French debt and are doubtful that the government can approve the necessary fiscal consolidation measures.
Analyst Manuel Pinto from XTB warns that doubts about France may lead investors to demand higher yields from other indebted countries. According to Pinto, the contagion could reach banks and companies through higher financing costs and losses in their bond portfolios. Analysts from Renta 4 Banco maintain that this contagion has already been felt in Italian and Belgian bonds.
Pinto believes that current levels do not replicate the 2011 crisis because there are more robust protection mechanisms in place and France does not exhibit the same banking tensions.
The CEO of Bankinter, Gloria Ortiz, dismisses concerns about the situation of French debt: "We are far from the financial debt crisis situation. France is a country with enormous credit capacity." Nevertheless, she acknowledges that volatility can raise risk premiums for some countries.
Spain is starting from a more favourable position. Ortiz points out that its risk premium is "well contained, below that of France and Italy." At the close of trading on Thursday, the Spanish ten-year bond stood at 4.051%, down from 4.081% on Wednesday, and the risk premium remained at 67.33 basis points, well below France's 171 points.
Pinto recommends that Spain take advantage of the good moment to strengthen its public accounts:
"Growth facilitates revenue collection and can reduce debt relative to GDP; turning that improvement into new permanent obligations, without securing future financing, would limit the ability to respond to a slowdown."
In France, the government of Emmanuel Macron has little room to respond to social tensions with more spending or lower taxes, and political fragmentation makes it difficult to approve the necessary adjustments.
You may also like
