France debt crisis: Bond investors have rendered a ‘guilty’ verdict and are pricing in growing odds of a sovereign default, analyst says

Faced with the prospect of a far-right or a far-left president, the bond market doesn’t see France curbing its rapidly growing pile of debt anytime soon and has started weighing the possibility that the eurozone’s second largest economy could default.

That’s according to Thierry Wizman, global FX and rates strategist at Macquarie Group. In a note Thursday, he said the cost of insurance against a French default is now the highest among the major EU countries and the UK.

Early Friday, the signals sharpened further as France’s five-year sovereign credit default swap rose to 81 basis points. At the same time, its 10-year bond yields jumped to 4.989%, the highest since 2002, and the premium over equivalent German yields widened to 152 basis points, the most since the eurozone debt crisis in 2011.

Wizman warned “the signal from France CDS pricing is that the OAT/Bund spread widening is due to higher sovereign default risk in France.”

Those metrics later came off their highs, but France’s fundamentals remain troubling, with anemic GDP growth, a budget deficit estimated at about 5.4% of GDP, and rising debt-service costs as yields........

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