LIVE MARKETS-Should French spreads be compared to Italy 2011?

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com.

SHOULD FRENCH SPREADS BE COMPARED TO ITALY 2011?

The rise of the French debt risk premium is a major concern for markets because it threatens to revive concerns about fiscal sustainability at the heart of the euro zone, with potential consequences for both bonds and stocks.

Inevitably, that is drawing comparisons with the euro zone crisis of the early 2010s, but the challenge is finding the right read across.

According to Jeremie Peloso economist at BCA Research, “the comparison with 2011 is not really relevant for France because France was not the problem in 2011.”

The French-German government bond yield spread – a market gauge of the premium investors demand to hold French debt -- was above 180 bps for just three sessions in mid-November 2011 at the height of the sovereign debt crisis, when it briefly hit 202 bps. It was last at 156 bps after reaching 177.70 bps last week.

“I think the relevant comparison is more versus Italy or Spain which were the ones which had issues,” Peloso adds, recalling that those spreads reached 500 bps in 2011.

“I don't think that's where we're going for France, because there was some (euro area) break-up risk priced back then, and I don't think that risk exists today,” he argues.

“But I wouldn't be surprised if it (the French spread) goes to 300-350 bps, and I wouldn't buy until there.”

(Stefano Rebaudo)

EARLIER LIVE MARKETS POSTS

RISING FX VOLATILITY SPELLS TROUBLE FOR CARRY TRADES CLICK HERE

A MORNING FOR STOCKPICKERS CLICK HERE

BEFORE THE BELL: EUROPEAN BANKS BRIEFLY IN SPOTLIGHT CLICK HERE

MORNING BID: RBNZ THROWS MARKETS A CURVEBALL CLICK HERE