French-German bond spread narrows to 140 basis points from 159
The gap retraces only part of a widening that took the premium to 150 basis points and French borrowing costs to their highest since 2002
Published
The gap between French and German 10-year borrowing costs falls to 140 basis points on Friday, down from 159 basis points, as French yields ease back from an elevated level reached earlier this week.
The move follows a stretch in which the spread widened to 150 basis points on Thursday, a level last seen in 2012, and the French 10-year yield climbed to 4.989%, its highest since 2002. Behind that rise sits concern over France's finances: ECB President Christine Lagarde has called the country's debt load, at 120% of economic output, serious and without a clear path lower, and French minister Lescure said on Wednesday that every measure in the budget remains open to negotiation.
German 10-year yields are also moving. They are down 10 basis points on the session to 3.41%, a three-week low, after climbing as high as 3.61% during September on worries over fiscal expansion, weak demand at bond auctions, and inflation and import price data that came in hotter than expected.
Through the entire episode, French fiscal stress has moved French yields, equities and the spread itself without a consistent spillover into Treasurys or broader risk appetite, and Friday's partial reversal does not break that pattern. The one channel that has shown cross-market effects is gold, where haven demand got a lift this week partly from France's fiscal troubles; a narrowing spread would, if anything, take some of that support away rather than add to it.