French debt risk premiums versus safe-haven German Bunds fell on Friday, after French President Emmanuel Macron said he would appoint a new prime minister in the coming days and his top priority would be getting a 2025 budget adopted by parliament.
The gap between French and German yields DE10FR10=RR – a gauge of the risk premium investors demand to hold French debt – fell to 73.50 basis points, its lowest since Nov. 21. It was last down 3.5 bps at 74.50 bps.
Michel Barnier, a veteran conservative, became the shortest-serving prime minister in modern French history when he resigned on Thursday after parliament voted him out over his fiscal plans, barely three months after he was appointed.
Investors have worried that the most likely outcome of the resulting political crisis was the extension of the 2024 budget to 2025, implying a less restrictive fiscal policy threatening the ability of the government to curb a burgeoning deficit.
Far-right National Rally (RN) leader Marine Le Pen, who voted to oust Barnier, said on Thursday she had no plans to seek the removal of Macron and a budget could be passed within weeks.
"Her comments suggest the political deadlock may not be as stuck as suggested over the past few days," said Michiel Tukker, senior European rate strategist at ING.
"Of course, these are just words, and reaching a credible government budget that satisfies Le Pen's party will prove a challenging task."
According to Tukker, "the spread tightening was felt more broadly throughout rates markets", also affecting Italian BTPs and Spanish Bonos.
JOINT FUNDING PROSPECTS
The yield spread between BTPs and Bunds DE10IT10=RR dropped to 105.40 bps on Friday, its lowest level since October 2021. It was last down 1 bp to 107.60 bps.
"BTPs are taking another major leap as prospects of more joint funding on the European level for defence is boosting the convergence trade," said Michael Leister, strategist at Commerzbank.
Yield spreads have tightened on market hopes for joint issuance from the European Union, which could fund growth and ease the debt burden for over-leveraged economies.
EU countries are discussing a 500 billion euros joint fund for common defence projects and arms procurement, tapping bond markets to boost spending in anticipation of Donald Trump's White House return, the FT reported on Thursday.
Meanwhile, euro area benchmark Bund yields were on track for their first weekly rise in more than a month after reaching 2% on Monday as markets await key U.S. data later in the session.
U.S. payrolls could affect expectations for the Federal Reserve monetary easing path.
Germany's 10-year yield DE10YT=RR rose 0.5 bps to 2.11% and was set to end the week 2 bps higher.
Markets await the European Central Bank policy meeting next week, with investors fully pricing a 25 bps rate cut and no chance of a 50 bps move, while focusing on the rate outlook.
Many think the central bank will have to cut below the neutral rate as inflation risks falling below target.
The neutral rate – which many analysts see at 2% - is the theoretical interest rate that would keep the economy operating at full employment and stable inflation.
Oil prices fell after the U.S. expanded economic sanctions on Iran, as Tehran vowed to retaliate and warned it had tools to respond, raising concer...
Kyiv has recently received a small number of U.S.-made Patriot interceptors capable of downing Russian ballistic miss...
Country music legend Dolly Parton, whose songs, unmistakable style and warmth made her one of America’s most enduring entertainers, has died ...
Oil prices fell after the U.S. expanded economic sanctions on Iran, as Tehran vowed to retaliate and warned it had tools to respond, raising concerns over potential disruption to regional oil supplies.
Ukraine’s President Volodymyr Zelenskyy said on Monday that Kyiv wants peace but will not surrender to Russia, as foreign leaders joined Independence Day events marking 35 years since Ukraine’s independence.
Only four commodity vessels crossed the Strait of Hormuz on Sunday, following 13 transits a day earlier, as disruptions continue to restrict traffic through the key energy chokepoint.
A newly created pro-government political party has secured a commanding victory in Kazakhstan's snap parliamentary election, according to exit polls, strengthening President Kassym-Jomart Tokayev's influence at a pivotal moment in the country's political transition.
Kyiv has recently received a small number of U.S.-made Patriot interceptors capable of downing Russian ballistic missiles, Ukrainian President Volodymyr Zelenskyy has said. It comes as Britain and France pledged stronger military support for Ukraine.
Kyiv has recently received a small number of U.S.-made Patriot interceptors capable of downing Russian ballistic missiles, Ukrainian President Volodymyr Zelenskyy has said. It comes as Britain and France pledged stronger military support for Ukraine.
Canada has announced nearly $20 billion in retaliatory tariffs on U.S. goods and billions in support for workers and businesses, escalating its trade dispute with Washington after President Donald Trump's latest duties took effect.
Pakistani exporters are facing soaring shipping costs to the U.S., with freight rates more than tripling on some routes as the Iran-U.S. conflict drives up war-risk insurance and fuel costs.
The trial of a Libyan man accused of building the bomb that destroyed Pan Am Flight 103 over the Scottish town of Lockerbie in 1988, killing 270 people, has been postponed by a U.S. federal judge.
France and Saudi Arabia have agreed on plans for a $7 billion manga-themed amusement complex near Paris, inspired by the hugely popular Japanese franchise Dragon Ball Z.
You can download the AnewZ application from Play Store and the App Store.
What is your opinion on this topic?
Leave the first comment