France’s Bonds Take a Beating
Investors move money into German debt, pushing the yield on its 10-year government bond as low as 0.3%
Government bonds in France and southern Europe tumbled again Friday, with fresh data showing that foreign investors continue to dump French debt ahead of the country’s presidential election.
The spread between French and German 10-year government-bond yields widened to 0.74 percentage point on Friday from 0.66 percentage point Thursday. French bonds are now trading in the same direction as those of the southern European countries, whose debt was hit hardest by the euro sovereign-debt crisis.
Bonds slid in Italy, Spain, Portugal and Greece on Thursday and Friday. Investors moved money into German debt, with the yield on its 10-year government bond falling as low as 0.3% during Friday’s trading, down from 0.35% at Thursday’s close.
During the sovereign-debt crisis in 2010 to 2012, investors were concerned that some countries could leave the eurozone, questioning the single currency’s existence.
Concerns for the currency bloc are increasing once again as betting odds rise for an election victory for Marine Le Pen, leader of the far-right National Front who has promised to take France out of the eurozone. Betfair now gives Mrs. Le Pen a 28.6% chance of becoming the president of France, up from 20.3% at the beginning of February.
While former economy minister Emanuel Macron remains the favorite in the presidential race, foreign investors aren’t taking the risk even as local-fund investors remain more sanguine.
Foreign-based investors sold €30 billion ($32 billion) in French bonds during the last three months of 2016, the most in two years, according to European Central Bank data released Friday.
Survey data suggest that international money managers who are invested in other French markets are also getting nervous. Bank of America Merrill Lynch’s regular survey of fund managers showed global investors’ sentiment toward French stocks was at its lowest level in two years. That shift comes even as investors generally warm toward eurozone equities.
“The two-round French [election] system means anti-Le Pen voters can rally around a single alternative in the final round and, therefore, she needs more than a lead in the polls, she needs a majority, to win the presidency,” said Tomas Hirst, analyst at CreditSights. The election rounds are in March and May.
But “markets are understandably wary of being caught out as they were with the Brexit and Trump votes last year,” he added.
Investors are also currently grappling with a more familiar problem for the eurozone, as Greek bonds sank Friday. Athens is again embroiled in a tussle with international creditors over the terms of its bailout. Yields on 10-year Greek bonds rose as high as 8.1% Friday from a close of 7.9% Thursday. Yields rise as bond prices fall.