It's not all rumour.The facts are that French debt is regarded as riskier by the market. If French govt. debt is riskier, then French bank debt will be more expensive too. Just like with Italian and Spanish banks.
?There is only one sovereign in Europe, and that is Germany,? said Stuart Thomson, who helps oversee about $120 billion as a portfolio manager at Ignis Asset Management in Glasgow. ?Everything else is a credit and trades like a credit, even France.? Investors currently demand about 90 basis points of extra yield to buy 10-year French debt rather than German bunds, even though both carry AAA grades from the major rating companies. That spread is almost triple the 2010 average of 33, and compares with 17 in the second half of the previous decade. The cost of insuring French debt rose to a record today. The ECB bought Italian and Spanish bonds for a third day today as it tries to halt a market rout, pushing Spain?s 10-year yield below 5 percent for the first time since December. The central bank?s previous round of bond purchases, though, failed to protect Ireland and Portugal from following Greece in needing financial aid as their funding costs surged. French bonds are the most costly AAA government securities to insure as investors raise bets that top-rated euro-region nations may be next in the firing line after the U.S. was downgraded by one notch to AA+ by S&P on Aug. 5. Credit-default swaps on France trade at 163 basis points, double the rate to protect German securities.
