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Good morning. This is Harriet Clarfelt, standing in for Mr Armstrong as he takes a much-deserved day off. Complaints to him, any other comments to me, please: harriet.clarfelt@ft.com.
I myself was on holiday just last week; something that Rob perhaps took into consideration as he sought out a well-rested colleague, fresh from sunnier climes.
Little chance on the weather front, given that I ventured back to my hometown, London. But, usefully, a brief hop across the continent to Austria and France did prompt me to take a closer look at European markets. (And dumplings, schnitzel and many other starchy food products . . .)
Which leads me on to . . . OATs
French government bonds, aka OATs (short for obligations assimilables du Trésor), have had a volatile time since President Emmanuel Macron called snap parliamentary elections two Sundays ago.
The 10-year French bond yield surged last week as the price of the instrument fell, and the spread or gap between French and German benchmark yields — seen as a barometer for the risk of holding France’s debt — rose to more than 0.8 percentage points last Friday, its widest level since 2017.
As has been well-documented by my colleagues, other French markets have also come under pressure over the past fortnight as investors digested the possibility of a far-right government with big spending plans, and the formation of a leftwing bloc that could erase Macron’s centrist alliance.
Last week marked the worst decline for the Cac 40 index since 2022, and — as I’ll discuss — European corporate borrowing premiums leapt higher.
So: 1) What do those higher premiums mean for companies with euro-denominated debt obligations? and 2) Could this bout of volatility present an opportunity for would-be investors?
My answers, in brief, are: 1) Companies tapping the European investment-grade bond market now have to pay the highest premium in several weeks to issue debt — not ideal if you’d been planning to get a big deal away any time soon.
And 2) Maybe — if you believe that any further turmoil will be shortlived beyond the two-round French political contest taking place on June 30 and July 7. Although, of course, individual credit selection is crucial — and then there’s the fact that France is far from