The French government is often a good indicator of investor sentiment in Europe, since it’s not quite “core Europe” but definitely doesn’t have the same problems as peripheral states like Spain and Italy.
That said, it would have huge exposure to the failure of Spanish or Italian banks.
Evidently no one’s worried about that today, however. Yields on French two-year bonds (which banks can buy with cheap cash from the European Central Bank’s two LTRO liquidity operations) are tanking today, down 15 basis points to 0.189 per cent, continuing a recent downward trend. This could belie some faith in plans EU leaders put forward at the EU summit.
On the other hand, yields on 10-year French bonds are still much higher, though down 10 basis points today to 2.40 per cent.
Check it out:
UPDATE: Investor @IvantheK suggested that we take a look at the difference between German bunds and French bonds as a better indicator of whether or not France is enjoying safe haven status.
At least today, the data suggest it is. The spread between German and French 10-year bonds has fallen 8 basis points today, to 103 basis points. This spread has been trending downward since May, although it’s not as dramatic as the absolute move in French bonds.