The French 10-year borrowing rate stood at 2.97% on Thursday and its Spanish equivalent reached 2.95%.
It has not happened to see the French interest rate at this deadline exceed its Spanish equivalent since November 16, 2006.
This reversal of the trend is explained by the political instability and the scale of the deficits which have recently weighed on French borrowing rates, while for several years the economic situation of Spain has improved, image of other countries in the south of the euro zone.
“Overall, there is a movement towards improvement in these countries. Greece, for example, went bankrupt in 2012, but twelve years later, the gap between French and Greek borrowing rates is only 0.16 percentage points.“, comments Aurélien Buffault, director of bond management at Delubac AM.
Between France and Spain, “the trend has been fairly continuous since 2015 and the gap between the rates of the two countries has been gradually narrowing“, he continued.
“The fight against inflation is won in Spain“and the country”displays growth that some countries are jealous of, such as Germany and France“added Mr. Buffault.
Spain is “once again become one of the locomotives of the euro zone with growth approaching 3% in the second quarter” year-on-year, while French growth over the same period was 1%, detailed the bond manager.
In addition to weaker growth, France’s budgetary situation is being watched like milk on the stove, while its public deficit is expected to exceed 6% of GDP this year.
Another sign of a certain distrust among investors, the gap between the French borrowing rate and the German rate with a 10-year maturity, the latter being “considered the risk-free rate” and which is thus a reference in Europe, is widening again.
“The rate gap dynamics show investor concern. It’s simple, the German rate has not changed for 15 days and it is the French rate which is deviating“, observes Florian Allain, portfolio manager at Mandarine Gestion.
On Thursday, the German 10-year rate was at 2.18%, bringing the spread to 0.79 percentage points, coming very close to the level that followed the surprise dissolution of the National Assembly in June by President Emmanuel Macron.
