(Bloomberg) — France’s bond yields could spike to 100 basis points above their German peers for the first time since 2012 if the nation’s political crisis deepens, according to Carmignac.
The yield difference between the two — considered a key measure of risk — already widened to as much as 79 basis points on Tuesday after Prime Minister Francois Bayrou announced this week that he would call a confidence vote in his own government.
That puts the spread at the widest since April, but a move even higher is possible, Guillaume Rigeade, co-head of fixed income at Carmignac, said in an interview.
“I would not be surprised to see the French-German spread widening maybe up to 100 basis points in the coming weeks if we see a dissolution of the assembly,” he said. The spread was last at that level during the euro zone’s debt crisis more than a decade ago.
“Even without this confidence vote, we would have had the same risk coming to the end of the year because it would’ve been difficult for the government to build a budget and to pass it at the assembly,” Rigeade added. “The direction of travel always was to see this widening spread, to reflect this uncertainty.”
Meanwhile, Natixis SA said the spread could climb to 90 basis points if the government’s confidence vote fails on Sept. 8. That level is also possible if rating agencies act promptly in response to the political instability, according to the firm’s economist Hadrien Camatte and strategist Theophile Legrand.
Fitch Ratings is the next agency due to update its view on France, on Sept. 12, but unscheduled statements are possible.
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