Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy. Turmoil in the government bond market is reviving memories of the eurozone debt crisis 15 years ago – but this time France is in the firing line. Concerns over Paris’s fiscal position are pushing its borrowing costs up, amid a global sell-off of sovereign debt.
This pushed the gap between France and Germany’s borrowing costs, a key measure of investor concern, to its widest level since 2012. Yesterday, the yield on French 10-year government bonds (or OATs) yields jumped to their highest level since 2002, before dipping back as the bond rout eased. Investors are reluctant to eat their OATs due to political uncertainty, with presidential elections scheduled for 2027, and concerns over France’s public debt which has climbed to a record high.
Jim Reid, Deutsche Bank strategist, points out that yesterday the Franco-German 10 year spread (+13.9bps) saw its biggest daily jump since March 2020 at the height of the Covid turmoil. Markets stumbled yesterday as we began Q4, with mounting signs of financial stress focused on Europe. In fact, the daily moves were reminiscent of the Euro crisis in many respects, with sovereign contagion a big talking point.
Inflation fears are also pushing up bond yields – and at 10am we get the first reading on how fast prices rose across the eurozone in September. If that doesn’t rock the market, then the latest US jobs report might, as pressure mounts on the US Federal Reserve to consider raising interest rates. 10am BST: Eurozone flash inflation reading for September 1.30pm BST: US non-farm payrolls employment report 3pm BST: US factory orders report for August
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