With the French 10-year bond close to 5%, analysts are watching to see if contagion reaches Spain, where the yield on the ten-year bond has already surpassed 4%.
According to El Periódico, financial markets are experiencing an episode reminiscent of 2010. The French 10-year debt is nearing 5%, a level not seen in two decades, raising doubts about whether the problem could extend to Spain.
Strategists at Morgan Stanley are among the first analysts to warn that the French debt crisis could spread to Spain or Italy, two of the countries that experienced sell-offs in Europe in 2010, along with Portugal and Greece.
Jeff Mueller, co-director of fixed income at Morgan Stanley Investment Management, summarised it in a note to clients:
“We are starting to see the first signs of contagion.”
Mueller adds that if the erratic price movements continue, it could draw the attention of policymakers. For him, full contagion would imply a more marked rise in the risk premiums of other countries, including Spain and Portugal.
The French risk premium hovers around 140 basis points, more than double that of Spain, while the Italian premium exceeds 100 points. Goldman Sachs considers the recent spike in the French premium to be extreme, but in its main scenario, it identifies Italy as the primary focus of contagion.
In Spain, the 10-year bond reached a maximum of 4.2% and surpassed 4% for the first time in over a decade. In Italy, the same term climbed to 4.5%. However, analysts currently rule out an immediate contagion to Spain.
The Spanish risk premium, the differential with German debt, stands at around 61 basis points. During the 2012 crisis, it exceeded 600 points.
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