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Friday 9 December 2016

France misses relief rally as debt cost soars

EURO DEBT CRISIS

Published 03/11/2011 | 05:00

FRENCH government borrowing costs hit a high against benchmark German bonds yesterday, as France becomes the latest victim of the crisis of confidence battering the eurozone.

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It meant France missed out on a "relief" rally that lifted shares and commodities from Tuesday's lows.

Away from the bond market, the euro rose to US$1.3746 against the dollar and rose to 107.32 against the yen.

And stocks bounced back from their low -- boosted by news from the US.

While Europe remains in disarray, markets got a lift from abroad. The US published better than expected jobs news and there were signs the US Federal Reserve plans to ease lending to banks, boosting credit.

Oil futures rose in London, up 32 cents to $109.86 a barrel, and the main European share index ended the session up 1pc, recovering some of the 6pc fall of the previous day.

In the bond markets, however, the situation remains fraught.

The price France pays to borrow for 10 years rose to 3.13pc yesterday.

It is 1.29pc more than Germany pays -- the widest the gap has been since the launch of the euro.

Timing

The timing is terrible for French President Nicolas Sarkozy, who is hosting fellow leaders of the G20 group of the top industrial nations at Cannes today.

It also comes as France plans to sell €7bn of bonds at auction.

French borrowing costs rose as rumours swirled in the markets that ratings agencies were close to cutting the European giant's credit rating.

France risks losing its coveted 'AAA' borrower status as a result of the commitment its government has already made to supporting Europe's bailout funds.

In a note to investors, UK bank RBS said France was now a "key short".

That meant RBS analyst Andrew Roberts recommended to investors that they should bet on the value of French bonds falling.

Italy is under even greater pressure in the markets. Its 10-year borrowing costs were close to 6.3pc yesterday, nearly a full percentage point above Spain's cost of funds.

Irish bond yields are holding up well in the latest crisis, consistently around 8pc for 10-year money.

In contrast, the flight from risky assets played to Germany's favour yesterday. It paid just 1pc to borrow €4bn of five-year government bonds yesterday.

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