French bond market pressure could make the euro more responsive to sovereign-risk concerns if the 10-year yield gap with Germany approaches 200 basis points, ING FX strategist Francesco Pesole said.
The OAT-Bund spread compares French and German 10-year government borrowing costs. ING's note put it at 174 basis points at close, after it touched 178 in the previous session, and placed the OAT-BTP gap at 50 basis points. ING said it expected little additional widening at the time of its note. It also said the euro had held roughly in line with other major currencies during the preceding session. The 200-basis-point level was a possible threshold for renewed euro sensitivity, not a forecast that the spread would reach it.
In France's 10-year constant-maturity series, the rate was 5.05% on Oct. 23, compared with 5.13% a day earlier, Agence France Trésor reported. For Germany, the Finance Agency's figure for a current 10-year Bund was 3.33%, versus 3.38% on Oct. 22. The agencies publish different yield series, so these figures do not directly reconstruct the OAT-Bund spread cited by ING.
ING saw no clear deterioration in France's fiscal or political conditions. It said French bonds' sensitivity to broader market shifts and the possibility of social unrest might have contributed to the spread move, presenting those as possible explanations rather than established causes. The market pressure follows an earlier EconoTimes report on a euro decline as the France-Germany yield gap widened.
France's Economy Ministry said Moody's left the country's credit grade at Aa3 and retained a negative outlook on Oct. 23. Agence France Trésor lists Nov. 27 as the next scheduled review of France by S&P.
