Investors are treating the U.K.’s stagnant, high-deficit economy on Europe’s fringe as a safer place for their cash than France at the heart of the euro area.
The CHART OF THE DAY shows how the gap in yields between French and U.K. bonds signals a change in perception of the two nations as the sovereign crisis engulfs the region. Debt sold by Prime Minister David Cameron’s government is outperforming French securities, a turnaround from the situation from October 2009 to March.
“France is closer to the epicenter of the debt crisis and that’s why U.K. yields pushed down in line with German bunds,” said Andy Chaytor, a rates strategist at Royal Bank of Scotland Group Plc in London. “That’s a pretty clear message that says the U.K. is a safer haven for your capital.”
In some ways France is stronger than Britain, with President Nicolas Sarkozy’s nation achieving 1 percent economic growth in the first quarter, double the rate across the Channel. What’s dragging France down is contagion from Europe’s so-called periphery and the exposure of its banks to the nations worst affected by the crisis.
France’s budget deficit was 7 percent of national output as of the end of 2010, compared with the U.K.’s 10.4 percent, according to Eurostat, the European statistical office in Brussels.
Gilts rallied this year, sending 10-year yields to 3.02 percent, the lowest since November. They beat French notes, which yield 3.35 percent.