Posts Tagged ‘France’

Germany vs. France Not Just Being Played on the Pitch

June 17th, 2010 Michael McDonough Comments off

The spread between France’s and Germany’s 10y Government bonds remain near levels not seen since the collapse of Lehman as France takes on tough fiscal tightening.  Since the onset of the European debt crisis France and German yields have benefitted from worried investors moving funds away from economically weak Eurozone peripheries to the regions ’stable’ AAA rated credits.  However, after being blindsided by Europe’s debt crisis investors are developing a new sense of risk, which doesn’t bode well for France’s lackluster history of correcting past deficits, especially while its current budget deficit approaching 8% of GDP.    This has given Germany an edge in investors’ flight to quality. France has already undertaken remedial measures to rein in the deficit, including raising the retirement age to 62 from 60, prompting  protests from the country’s socialist party and labor unions.  France will likely struggle with its ability to rapidly implement the necessary austerity policies, with any significant slippage, or success, revealing itself in the country’s spread to equivalent German government bonds.

Source: Bloomberg

Categories: Europe Tags: , , , ,

France Shows Signs of Weakness…

June 9th, 2010 Michael McDonough Comments off

France is no European angel in terms of its fundamental, yet like Germany the credit has received  ’safe-haven’ status from investors; that is until recently.  French 10Y government bonds have traded mostly lockstep with equivalent German debt since the onset of the European debt crisis, but since the beginning of June the spread between the two have begun to widen.  Historically, France and Germany have had easy access to global financial markets, allowing them to readily issue large sums of Euro denominated bonds, separating the pair from smaller Eurozone peripheries including Greece.  However, investors are growing increasingly concerned over France’ ability to to rein in spending and control a surging deficit.

One of the best quotes I have seen on the topic comes from Nicolas Lenoir, chief market strategist at ICAP Futures LLC, who says, “Being French I can promise you first hand that if there is any form of austerity required as part of the $1 trillion package it will not fly one bit,” Lenoir said in a recent correspondence “We had riots with a daily car-burn rate above 1,200 for over a week because a teenager electrocuted himself trying to escape from the cops, so just try and imagine if railway workers can no longer retire at 50 or 55 after being driven to exhaustion watching a computer do their job 35 hours a week.”  In short, investors’ recent concerns–demonstrated by rising spreads to Germany–are likely not unfounded given France’s past on implementing such measures.  Looking ahead, France will likely continue to come under the microscope of investors, and without clear continued indications the country is headed in the right direction what historically has been easy access to foreign money may feel a bit more painful.

Source: Bloomberg