France has seen its borrowing costs overtake Ireland’s for the first time since the financial crisis as investors worry about the prospect of far-right, eurosceptic Marine Le Pen winning presidential elections in April.
French 10-year borrowing costs – at 1.045pc per year – overtook lower-rated Ireland’s 1.037pc yesterday for the first time since 2007.
France’s credit ratings are Aa2, AA and AA from Moody’s, S&P Global and Fitch – all well ahead of Ireland’s A3, A+ and A respectively.
Europe’s benchmark German bond yield also climbed to a one-week high on Tuesday after signals the US Federal Reserve was preparing to raise interest rates there.
That pushed up US and other global benchmark bond yields and strengthened the dollar, as traders started to price in a slightly higher chance of a move at the Fed’s next meeting, on March 14-15.
“The general tone from the statement is pretty upbeat … Markets were relatively relaxed about March, and perhaps it may just edge expectations slightly in that direction,” said Victoria Clarke, an economist at Investec, adding that she expected the next increase in June.
In the eurozone, analysts said disappointing growth data and an uncertain political outlook should temper any further rise in bond yields.
German, the eurozone’s biggest economy, expanded 0.4pc in the final quarter of 2016, less than expected, tamping down inflation expectations. German 10-year yields initially dipped slightly on Tuesday, but later hit a one-week high of 0.38pc.
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