Live Markets: France OATs just lost their 'exorbitant privilege'

Kongsberg Gruppen ASA

04/12/2024 09:42

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      STOXX 600 up 0.3%
    

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      France's CAC 40 up before no-confidence vote
    

        * 
      S. Korea's Kospi slides after Martial Law bid
    

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      S&P, Nasdaq futures higher
    

  
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    FRANCE OATs JUST LOST THEIR ‘EXORBITANT PRIVILEGE’
    Markets are bracing for either a muted reaction or a 'buy on
rumours, sell on news' response to the no-confidence vote in
France announced earlier this week. 
    Some analysts also argued that the yield spread of French
bonds versus safe-haven Bunds didn't widen much, considering the
country's public debt.
    "We noted that the 10-year OAT-Bund spread since the global
financial crisis (in 2008) has never reflected the widening gap
in interest expenditure and total debt as a share of GDP," says
Davide Oneglia, lead analyst at TS Lombard.
    "This was thanks to what we called France's 'exorbitant
privilege', that allowed the government to fund at Germany's
costs while running a much more expansionary fiscal policy."
    "A repricing of France's debt to around 80-90 basis points
was warranted by fundamentals, while a further repricing as the
‘exorbitant privilege’ is discounted amid political chaos could
put the spread in the 100-120 bps area," Oneglia argues.
    Citi set a target at 100 bps weeks ago, while Barclays
recently said the French yield gap could approach Italy's, which
is currently at 120 bps.
    OATs "seem to follow the "sell the rumour, buy the fact"
pattern ahead of today's no-confidence vote," said Michael
Leister, head of interest rate strategy at Commerzbank, adding
that "OATs have lost their shock potential for now."

    (Stefano Rebaudo)
    *****
    
    WEDNESDAY'S OTHER LIVE MARKETS POSTS:
    EUROPEAN STOCK MARKETS MIXED, EYES ON FRANCE CLICK HERE
    POLITICAL STORMS SAP SENTIMENT CLICK HERE
    EUROPE BEFORE THE BELL: FUTURES WEAK BEFORE FRANCE VOTES
CLICK HERE
    

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South Korea's Kospi Index struggles in 2024    https://tmsnrt.rs/3CRjXVN
French risk premium jumps to highest since 2012    https://reut.rs/41chCz3
European shares mixed before French vote    https://reut.rs/3BdhB35
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