France's 10-Year Borrowing Costs Surge Against European Benchmarks!
The gap between the 10-year French government bond yield and the 10-year EUR Swap rate, a key benchmark for borrowing costs in Europe, has significantly widened since the recent European elections in France The trend was already "en marche" since S&P recently downgraded France’s credit rating from AA to AA-, following a similar downgrade by Fitch last year. Moody’s has also indicated that the current situation might lead to another downgrade. While other countries like Ireland and Spain have seen their financial health improve, France seems to be facing more challenges. Political uncertainty and reliance on international investors might cause money to leave France, pushing borrowing costs even higher. Higher interest rates on French bonds mean that investors want bigger returns because they see more risk in lending money to France. Japanese investors, who own a lot of French bonds, might start investing more in their own country due to rising interest rates there, reducing demand for French bonds. Additionally, some hedge funds are betting against European government bonds, showing a lack of confidence in the stability of European economies, including France. This trend underscores the growing concerns about France’s economic and political stability in the broader European context. Source: Bloomberg
France’s bond yield hit the highest level this year on snap election.
10 year French bond yield climbs 11bps to 3.21%. Risk spread over Germany rose to 54bps, highest since January. Source: Bloomberg, HolgerZ
Japan owns $1.2 trillion of US Treasuries.
As Japanese yields rise, the domestic market will attract dollars away from US debt. "Rising long-term interest rates in Japan put upward pressure on long-term US Treasury yields:" Apollo's Torsten Slok Source: Bloomberg, Lisa Abramowitz
Warren Buffett's Berkshire Hathaway owns 3% of the entire Treasury Bill market according to JP Morgan
Source: Barchart
It's hard to understate just how unprecedented the scale of US fiscal stimulus is at the moment.
Not only is the deficit massive for a non-crisis period, but its financing is almost entirely via very short-term issuance, which has never been the case before in a non-crisis time. Source: Robin Brooks
German 10y yields jump to 2.64%, highest since Nov, following a somewhat hotter inflation report.
German Harmonized CPI rose to 2.8% in May YoY from 2.4% in Apr, above the 2.7% median estimate in a BBG poll of economists. German national CPI rose to 2.4% from 2.2% as expected. Source: Bloomberg, HolgerZ
More US high-grade borrowers at risk of downgrade as economy slows
A rising share of the $8.9tn high-grade US corporate bond market is at risk of being slashed to junk status, with rating agencies’ expectations of downgrades exceeding upgrades for the first time since the end of 2021. The proportion of the lowest-quality investment-grade bonds that rating agencies have on so-called “negative watch” or “negative outlook” — meaning their ratings are more likely to be downgraded — stood at 5.7 per cent this week, according to analysis by BofA Securities, including names such as Paramount Global and Charter Communications. That is almost double the level of 2.9 per cent at the start of this year. In contrast, the percentage of these bonds on “positive watch” — meaning they are more likely to be upgraded — stood at 5.3 per cent, down from 7.9 per cent in early January Full FT article >>> Source: FT, C.Barraud
Japan's 10-Year Bond Yield hits 1% for the first time in more than a decade
Source: Barchart
