France's bond premium jumps 69 basis points in a month
France's 10-year premium over Germany reached 174 basis points on Thursday, up from 105 a month earlier on World Government Bonds' series. Reuters called it the widest since November 2011.
France paid 177.7 basis points more than Germany to borrow for ten years on Thursday afternoon, according to Reuters. That is the widest gap since November 2011, in the worst of the euro zone debt crisis. A basis point is a hundredth of a percentage point, so the premium is about 1.8 points of extra yield.
The spread is the extra yield investors demand to hold French government debt over safe haven German Bunds. The jump reflects a month of rising concern about French political and fiscal risk, alongside higher yields across the euro area. The spread is at a 15-year high but remains below the 2011 peak. The 2011 episode lasted much longer; this one is a month old.
Why the spread figures differ
Three measures give different readings of the gap. The ECB's monthly series averages each month. It put the French premium at 97 basis points in September, against 154 in November 2011. A monthly average smooths out daily spikes, so it understates a fast move. On that series, France is far from the old peak.
The official daily numbers give a larger gap. The French Treasury's TEC10 index stood at 5.13% on Thursday. The Bundesbank puts the 10 year German yield at 3.42%. The difference is about 171 basis points. The two use different yield definitions, a constant maturity index and a par yield, so the gap is approximate.
Even the yield on Germany's benchmark bond, the Bund, depends on the source. Reuters reported the Bund at 3.34% on Thursday, 8 basis points under the Bundesbank figure.
So 97, 171 and 177.7 measure different things: a September average, an official daily gap and an intraday quote. A consistent series is needed to compare today's gap with the 2011 peak.
World Government Bonds, an aggregator, shows a daily peak of 190.2 basis points on 15 November 2011. The same series printed 174.4 at 17:15 GMT on Thursday, about 16 basis points under that peak.
On that series no reading since 2011 has been higher. The 2012 high was 154.3 basis points on 6 January. Every year from 2013 to 2025 stayed below 88.
How quickly the premium widened
The speed of the widening stands out. The same series had the spread at 105.2 basis points on 22 September. That is a rise of 69 basis points in a month, and the ECB's September average cannot show it.
France's benchmark 10 year yield, on the bond known as the OAT, also touched 5.1415% on Thursday. That is its highest since July 2002, according to Reuters.
The ECB has not yet published an October average. Using the official daily figures, the mean for 1 to 22 October is about 138 basis points, well above September's 97. The methods differ, so the two are not directly comparable. The direction is still clear: October is running higher.
Since 15 October the official gap has widened from about 132 to about 171 basis points. The TEC10 rose 39 basis points, from 4.74% to 5.13%.
The Bundesbank yield ended the week where it began, at 3.42%, and it never rose above 3.46%. On Thursday itself Reuters had the Bund 7 basis points lower on safe haven buying, so the spread widened from both ends.
Reuters ties the sell off to political uncertainty before next year's presidential election and difficulty passing the 2027 budget. Protests are planned for Saturday, with troops alongside police.
Reuters adds that higher energy prices have lifted borrowing costs this year by raising expectations of tighter monetary policy. Markets now price about three more ECB rate rises by late 2027.
Belgium's spread rose 10 basis points to 110 on Thursday, and Italy's rose 10.5 to 123. Both remain well below France, so the market is singling France out.
How this compares with 2011
The 2011 crisis developed over several months. On the ECB series the spread rose from 35 basis points in April 2011 to 154 in November. The early months were flat, at 42 in January and 40 in March.
The spread reached 66 in July and 99 in October. It then stayed above 100 basis points for nine months, to July 2012. The chart sets that window against the last two years.
In the recent window, the monthly spread stayed between 66 and 84 basis points for 23 months before rising to 97 in September.
None of the series puts France at its 2011 peak, and the current widening has yet to last as long as that episode. The next few weeks will show whether the spread holds near current levels.
Intervention, refinancing and rating dates
ECB intervention would require a further deterioration. Nomura's Andrzej Szczepaniak told Reuters the bar for the ECB to intervene is "very high". Things "would have to worsen a lot from a contagion perspective" first, he said, before the ECB judges the moves "unwarranted and disorderly".
The extra cost builds slowly as France refinances its debt. The Treasury's average yield on this year's OAT issuance is 3.55% across all maturities, as of 30 September. Ten year money now costs about 5.1%.
Negotiable debt stood at about EUR 2.9 trillion on 30 September, with an average life of a little over eight years. Refinancing is therefore steady and large, and the budget fight matters more than the headline spread.
The next scheduled tests are rating reviews. On the Treasury's ratings calendar, Moody's rates France Aa3 with a negative outlook and is scheduled to review it on 23 October.
S&P rates France A+ with a stable outlook, and its review falls on 27 November. That review can leave the rating alone, move the outlook to negative or cut the rating.