The cost of insuring French banks' bonds against default has jumped above that of other European lenders as concerns about France's fiscal and political situation spill over into credit markets. The annual cost of protecting €10 million ($11.2 million) of Societe Generale SA's bail-in senior debt for five years reached €103,000 on Monday, about €16,500 more than insuring similar debt issued by Deutsche Bank AG, according to data compiled by Bloomberg. As recently as late August, the cost was identical.
The credit-default swap spreads of BNP Paribas SA and Credit Agricole SA are also far above those of major banks in the UK, Germany, Switzerland and Spain, the data show. The yawning gap comes as France is gripped by fiscal and political volatility. Last week's budget proposal was described as "optimistic" by the nation's fiscal watchdog, while investors are also on edge ahead of next year's presidential election, with recent polling indicating it may come down to a second-round runoff between the far-right front-runner Marine Le Pen and far-left rival Jean-Luc Mélenchon.
France's 10-year yield has surged in recent months, while the premium investors charge to hold those bonds over equivalent German bunds recently hit the highest level since the euro area debt crisis. "Higher rates, renewed fiscal concerns and mounting uncertainty have finally broken the recent calm in euro credit," ING Bank strategists Jeroen van den Broek and Timothy Rahill wrote in a note to clients on Monday. "The weakness has been most pronounced in French risk but has also spilled over into the peripheral."
Banks have skin in the game either through holdings of sovereign debt or by their loans being exposed to the indirect effect of economic policies. The CDS spreads of France's largest banks were already higher than those of European peers going into September as political risk has been simmering for a couple of years before escalating in recent weeks.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing