Another nail in the coffin for old Europe’s risk free status.
The French 10 year note is now seen as a spread product over comparable Bunds — 153bp at pixel time.
(click to enlarge)
According to our quote machines, the last time spreads were higher was during the pre-euro age of innocence, or October 1990, when the spread was 237bp.
If this is the new normal for French credit risk, it could have a huge impact on French corporate capital-raising trends as markets price in the declining creditworthiness of the sovereign. Nevertheless, the fall in Bund yields provides a natural offset for corporates that price off new risk relative to the German benchmark.
Anyway, markets are sounding the alarm over France’s fiscal funk and financial exposure to Italy. This is getting scary.
Coverage of eurozone debt crisis – FT Alphaville