Stress in French sovereign debt markets intensified Thursday, with France’s 10-year government bond yield rising another 8 basis points while the German 10-year Bund yield fell 6 basis points. That move pushed the spread between French and German 10-year debt to 135 basis points, well above the roughly 50-80 basis point range seen over the past few years. Credit default swap spreads on French bonds also climbed to a 13-year high.
The pressure spilled into foreign exchange markets. The euro fell another 0.9% against the U.S. dollar to $1.1231, its weakest level in about five months. ZeroHedge framed the move as a sign that something may be breaking in Europe after a period of monetary tightening.
In the U.S., traders kept backing away from expectations for another near-term Federal Reserve rate increase. The 2-year Treasury yield dropped 7.5 basis points to 4.81% on Thursday, while the odds of a Fed move in October fell to 33.8%, down from about 70% earlier this week. The update came as bitcoin held near $84,000 ahead of Friday’s U.S. jobs report, according to CoinDesk’s live coverage headline.
Pressure built in France’s sovereign debt market on Thursday. ZeroHedge wrote, 「It’s been a while since we had a European sovereign debt crisis,」 pointing to fresh strain in French government bonds.
France’s 10-year government bond, or OAT, saw its yield rise another 8 basis points during the day, even as the yield on the German 10-year Bund fell 6 basis points.
That widened the spread between French and German 10-year debt to 135 basis points. Credit default swap spreads on French bonds also jumped to a 13-year high.
For comparison, the spread between 10-year Bunds and OATs has mostly traded in a range of about 50 to 80 basis points over the past few years.
In currency markets, the euro continued to lose ground against the U.S. dollar, falling another 0.9% to $1.1231. That marked its weakest level in about five months.
The report said markets have long followed the idea that central banks keep tightening monetary policy until something breaks, and that may now be playing out in Europe.
At the same time, traders kept pulling back from bets on another near-term Federal Reserve rate hike. The yield on the 2-year U.S. Treasury fell 7.5 basis points to 4.81% on Thursday, while the probability of a Fed move in October dropped to 33.8% after sitting at about 70% earlier this week.
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