France's benchmark 10-year bond yield climbed to almost 5% this month, its highest in nearly a quarter of a century, as investors grew anxious over the sustainability of the government's debt pile. Despite the sell-off, several large asset managers are buying beaten-down Eurozone bonds on a bet that fears of a wider blowup are overdone, while France's central bank chief says an European Central Bank (ECB) intervention is not needed.
Asset managers bottom-fish Eurozone debt
France's borrowing-cost premium over 10-year German Bunds has jumped to 1.4 percentage points, up roughly two-thirds from the start of the month, as the sell-off spread into the wider European bond market. Italy's spread over Bunds has also widened, climbing to 1.1 percentage points.
Yet several asset managers say the moves have gone too far. "This isn't a repeat of the early 2010s," said Aberdeen Investments fund manager Alex Everett, whose firm has bet on Italian bonds outperforming Bunds. W1M's co-head of fixed income, James Carter, said his firm had been buying French corporate bonds including those issued by Axa and BNP Paribas, while Schroders has reduced its underweight position in Italian and Spanish debt.
ECB says intervention is not needed
Corporate credit spreads widened too, with option-adjusted spreads on European investment-grade debt rising to 1 percentage point on Friday from 0.8 percentage points in early September, before edging back to 0.96 points on Wednesday, according to an ICE BofA index. France's central bank chief said on Wednesday that an ECB intervention was not needed, adding that the central bank is not there to deal with countries' budget problems.
Eurozone ministers press Paris on its budget
Eurozone finance ministers and ECB officials are meeting in Luxembourg on Thursday afternoon for emergency talks, with ministers set to instruct Paris to pass its 2027 draft budget to prevent fragmentation across European debt markets, officials told Reuters. Separately, the Federal Reserve's September meeting minutes showed a majority of policymakers still see another interest rate hike as likely before year-end, dashing hopes for a swift pivot to easing.
Schroders fund manager James Ringer said the French situation remains unresolved, keeping the firm's focus on sovereigns and asset classes with stronger fundamentals.
Sources: Financial Times, Investing.com
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