French-German Yield Spread Expands to Widest Since 1992 on Rating Concern
France’s 10-year bond yield climbed to the highest compared with Germany’s in almost 20 years after Moody’s Investors Service said the nation’s Aaa credit rating is under pressure due to the regional debt crisis.
French securities also fell along with those from Greece and Spain after reports showed China’s economic growth slowed and German investor confidence worsened, fueling speculation the global recovery is losing momentum. France’s financial strength has waned because of the financial crisis, New York-based Moody’s said yesterday. The euro-area’s second-largest economy is a guarantor of the European Financial Stability Facility regional bailout fund.
“If the EFSF is expanded, it would increase the contingent liabilities for Aaa guarantor states like France and Germany, which would be good for the periphery but not necessarily that good for stronger euro countries,” said Elwin de Groot, senior market economist at Rabobank Nederland in Utrecht, Netherlands. “You can see the market’s concern in the spreads.”
France’s 10-year yield rose eight basis points, or 0.08 percentage point, to 3.14 percent at 4:51 p.m. London time. The 3.25 percent bond due October 2021 fell 0.705, or 7.05 euros per 1,000-euro ($1,367) face amount, to 100.960. The German bund rate dropped eight basis points to 2.01 percent.
The difference between the two yields expanded by as much as 18 basis points to 114 basis points today, the widest since 1992 based on Bloomberg generic prices.
Bunds Outperform
German bonds have returned 6.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. French debt gained 3.6 percent, and Treasuries rose 8.1 percent. Italian bonds lost 3.7 percent, even as the European Central Bank bought the securities.
China’s economic growth cooled to 9.1 percent in the third quarter from a year earlier, the least since 2009, the statistics bureau said today. The ZEW Center for European Economic Research in Mannheim said its index of German investor and analyst expectations declined to minus 48.3 from minus 43.3 in September. Economists expected a drop to minus 45, a Bloomberg News survey showed.
The euro weakened 0.1 percent to $1.3720, after falling 1 percent yesterday. The Stoxx Europe 600 Index slid 0.4 percent.
Bunds extended their advance after Goldman Sachs Group Inc. reported a quarterly loss, only its second in 12 years as a public company.
‘More Cautious’
Investors bought the bonds of most higher-rated countries as a refuge on signs the global economy is slowing and as they await a European leaders’ summit on the debt crisis scheduled for this weekend. Bunds rose yesterday as Germany moved to quell speculation the Oct. 23 gathering will result in a complete resolution to the debt crisis.
“Until we see what comes out of the meeting this coming weekend, the market will remain on the more cautious side,” said Michael Markovic, a senior fixed-income strategist at Credit Suisse Group AG in Zurich. “The focus is also on the economic numbers. In this environment we remain more constructive on bunds.”
Finland’s 10-year yield fell seven basis points to 2.49 percent, and similar-maturity Dutch rates dropped six basis points to 2.44 percent.
Greece, Spain
Greek bonds led losses among the securities of Europe’s most indebted nations, with the yield on its 4 percent note due in August 2013 rising 161 basis points, or 1.61 percentage points, to 76.42 percent, leaving the price at 38.61.
Greece sold 1.625 billion euros of 13-week Treasury bills today with a uniform yield of 4.61 percent, according to the Public Debt Management Agency in Athens. Investors bid for 2.86 times the securities offered, the agency said.
Two-year yields in Spain rose 13 basis points to 3.88 percent and in Italy they climbed seven basis points to 4.45 percent. Irish two-year rates increased by 15 basis points to 7.83 percent.
The Spanish Treasury sold 3.56 billion of 12-month bills at an average yield of 3.608 percent, compared with 3.591 percent at an auction on Sept. 20. The country also sold 1.04 billion of 18-month debt at 3.801 percent.
Ireland may try to transfer part of the 62 billion-euro cost of bailing out its banks to the euro-region’s rescue fund should policy makers allow the facility to buy stakes directly in lenders, three people with knowledge of the matter said.
Volatility on Denmark’s sovereign debt was among the highest among developed markets today, according to measures of 10-year bonds, two-10-year spreads and credit-default swaps. Swings on Danish 10-year bonds were 1.4 times the 90-day average, according to the Bloomberg gauge of developed markets. Denmark isn't part of the euro area.
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Garth Theunissen in London at gtheunissen@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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