It was good for French government bonds that President Emmanuel Macron won the TV duel against his challenger, the right-wing populist Marine Le Pen.

Because the risk premium compared to ten-year Bunds narrowed to 0.46 percentage points on Thursday after the so-called spread rose to 0.55 percentage points shortly before the first round of the presidential election, the highest level in almost two years.

Markus Fruehauf

Editor in Business.

  • Follow I follow

The rise in yields associated with price losses on bonds has widened interest rate differentials in the euro zone in recent months.

Italy's risk premium has also increased: while it was 0.97 percentage points in mid-September 2021, it was 1.65 percentage points on Thursday.

The turnaround in interest rates increases the risks for debtors, who bear higher burdens.

The debate within the European Central Bank (ECB) about a possible increase in key interest rates as early as the third quarter caused interest rates to rise again on the bond markets on Thursday.

With a yield of 0.936 percent, the 10-year Bund came close to its seven-year high of 0.956 percent reached earlier in the week.

The rise in yields was even clearer at the short end, where speculation about possible interest rate hikes has the greatest impact.

The yield on the two-year Federal Treasury notes peaked at 0.13 percent.

At the beginning of March it was still minus 0.75 percent.

In recent years, euro problem children such as Italy and Greece have benefited from the ECB's bond purchases.

Italy has secured historically low interest rates for a long time.

However, a rise in interest rates makes future refinancing more expensive.

This also applies to France: "When interest rates rise, debt servicing reacts proportionally to the debt level and thus increases the deficit," warns Stéphane Déo, market strategist at French asset manager Ostrum.

Getting out of this exponential path is difficult.

The debt level will not be a concern if the high deficit owed to the Covid crisis is stabilized.

For this, Déo requires a reduction in debt and, above all, continued moderate interest rates.