France’s Bond Risk Is Outpacing Italy’s by Most in Euro History
Bond investors are demanding the most compensation to own French bonds over Italian ones since the founding of the euro. The spread between the two nation’s benchmark 10-year bond yields hit a record at 30 basis points on Friday. Until last year, Italy was considered the riskier of the two, with higher borrowing costs than France.
Now, investors are punishing France for not cutting its budget deficit as much as hoped and for showing no signs of reducing its 117.6% debt-to-GDP ratio. Money managers are also asking for a higher yield to compensate for the political uncertainty ahead of a presidential election next April that could pit the far-right against the far-left.
At the same time, Italian bonds are getting rewarded for years of painful austerity that reduced government debt levels and boosted economic growth. While the nation’s bonds were hit hard during the recent selloff, investors say the moves were unjustified. French bonds underperformed those of other nations in the region too, but the move against Italy draws attention because the latter was considered for years a bellwether for euro-area sovereign risk.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing