“I want to tell the French that the moment is very serious.” This Tuesday afternoon on TF1, Michel Barnier warned the country and the opposition in Parliament. A possible censorship by the government on the Budget vote would lead France into a very dangerous financial spiral.
A statement that does not correspond to reality, since this morning the interest rate on French bonds even exceeded that of Greece. And not on the 5-year bond as last September, but on the 10-year rate, which serves as a reference to measure the spread with the States.
Between 9:00 and 10:00 this morning, the “French 10-year” rose to 3.045%, while at the same time the “Greek 10-year” did not exceed 3.04%. Since then, the French bond yield has fallen below that of the Greek bond, but even this temporary excess reflects a concern rarely seen in the markets about the French situation.
The risk premium of the French bond is, therefore, more or less for investors equal to that of Greece, the country that has the highest debt-to-GDP ratio in Europe (160% of GDP).
France, at the bottom of the group
Worse still, the “French tenth year” is now higher than the rate of almost all the countries that Anglo-Saxons pejoratively nicknamed PIIGS in the early 2010s, namely Portugal, Ireland, Italy, Greece and Spain.
The Portuguese rate is currently below 2.7%, the Irish rate below 2.5% and the Spanish rate below 2.9%. Only Italy is worse than France, with a 10-year debt rate above 3.4%.
As for the differential with Germany, which is already at its highest level since 2012, it continues to increase. This Wednesday morning it is close to 90 basis points (0.9%) after closing Tuesday night at 84.
The causes of the French collapse are known. More than public deficits or debt-to-GDP ratios, what investors judge harshly is political instability.
With an unknown that particularly worries them: the cost of the compromises that the Prime Minister will have to make to avoid censorship and that risk causing France to deviate from its deficit trajectory.
Especially because the moment is especially inopportune for the country, as Marine Mazet, rates strategist at Nomura, explains.
There are only a few days left to avoid “the storm.”
Source: BFM TV
