How the French bond drama affects U.S. markets
Add Axios as your preferred source to
see more of our stories on Google.
The unrelenting sell-off in French bonds continues. The latest move shows how that nation's precarious fiscal and political situation could spill over elsewhere — including offering relief for U.S. borrowing costs.
The big picture: U.S. Treasury yields have fallen in the last couple of weeks, while French borrowing costs have surged. Borrowing costs are also down in other traditional safe-haven nations.
- This may partly reflect investors seeking alternatives to French bonds, alongside a broader safe-haven effect as there have been new wobbles in AI-related debt markets.
Driving the news: The effect is particularly pronounced in Thursday's trading. As of 11:30am ET, 10-year French government bond yields were up another 0.08 percentage point, to 5.07%, a new 24-year high.
- Yields on the 10-year U.S. Treasury, meanwhile, were down 0.12 point, to 5.02%, the lowest since Sept. 22. That rate reached 5.31%, a multidecade high, just over two weeks ago on Oct. 5.
- Sovereign bond yields are also down sharply Thursday for Germany, Canada and Switzerland.
State of play: The overall action in financial markets Thursday fits a classic "risk-off" pattern, with global stocks falling and money flowing into bonds of most countries other than France.
- In effect, French fiscal troubles have made a significant pool of global safe assets look significantly less safe — and U.S. debt comparatively attractive.
What they're saying: "Treasuries are benefiting from France's deteriorating debt dynamics and bond market turmoil," Michael Pedroni, CEO of Highland Global Advisors and a former Treasury official, tells Axios.
- "While the U.S. debt outlook is troubling, market participants continue to treat Treasuries as a safe haven," he adds. "Safety is relative."
- "In contrast, French bonds appear to carry substantial credit risk, given the country's anemic growth, mounting debt fueled by an overly generous pension system, social unrest and signals that the European Central Bank may wait for conditions to worsen before intervening."
The bottom line: The French term for spillover effects is "effets de débordement," online translators tell us. It's a phrase with which everyone may wish to familiarize themselves.
