LONDON: French government bonds traded steadily on Wednesday ahead of a vote in France’s parliament on no-confidence motions that look set to topple Prime Minister Michel Barnier’s government.
The broader fixed income market gave back some safe-haven gains made after South Korea briefly declared martial law the previous day.
Euro tumbles as French govt crisis grows
European Central Bank policymaker Robert Holzmann said in an interview published on Wednesday it was “conceivable” the central bank will cut interest rates by a quarter point next week, but not more.
Markets currently fully expect a 25-basis point cut from the ECB at its upcoming meeting and price in a 27% chance of a larger half-point cut.
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French 10-year OAT yields were at 2.903%, virtually unchanged on the day, which left their premium over German Bunds a touch narrower at 83.8 basis points.
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French five-year sovereign credit default swaps closed on Tuesday at 40 bps, according to data from S&P Global Market Intelligence. LSEG data shows this was the highest since May 2020 and double where they were six months ago.
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German 10-year yields, which on Tuesday briefly touched a new two-month low, were also steady at 2.054%, while two-year Schatz yields were up 1.2 bps at 1.958%.
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Germany auctions 3.5 billion euros in 2.6% 2034 Bunds later in the day.
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France comes to market on Thursday with 5 billion euros in 2038, 2040, 2050 and 2072 OATs.
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