French, German borrowing rates at new all-time lows

French, German borrowing rates at new all-time lows

6th January 2015, Comments 0 comments

French and German borrowing rates reached new all-time lows on Tuesday amid fears over the prospect of Greece leaving the eurozone.

As of 0830 GMT, France's 10-year debt hit 0.772 percent on the secondary market, while the German 10-year Bund fell to 0.484 percent.

"Factors causing the recent risk-off mode are unlikely to fade rapidly," BNP Paribas analysts said in a note.

"Greece and the question of QE (stimulus) are keeping bond markets nervous," it said, adding that the anxiety is likely to persist through January.

At the weekend, the Der Spiegel weekly quoted German government sources as saying that Berlin sees a Greek exit from the eurozone as "almost inevitable" should Greece's radical leftist Syriza party win snap elections on January 25.

Both Chancellor Angela Merkel and her finance minister Wolfgang Schaeuble have come to consider that Greece's departure from the single-currency bloc would be "manageable", the magazine said.

German media saw the Spiegel article as an attempt by Merkel and Schaeuble to put pressure on Greeks and Syriza leader Alexis Tsipras, who has vowed to end austerity policies.

The spectre of a Greek exit from the eurozone caused major stock markets to tumble on Monday despite a European Commission declaration that eurozone membership was irrevocable.

Meanwhile, the European Central Bank is coming under heightened pressure ahead of its January 22 meeting on monetary policy to do more to help prop up the eurozone economy amid fears of deflation.

If euro area-wide inflation turns negative, the ECB may have to resort to radical measures such as so-called quantitative easing (QE), the large-scale purchase of sovereign bonds, analysts said.

At times of uncertainty, traders prefer to park money in the relatively safe haven of sovereign bonds rather than play the riskier stock market.

Even countries considered more fragile such as Spain and Italy benefit from this trend. Spain's 10-year bond yield dropped to 1.594 percent on Tuesday from 1.609 percent on Monday, while Italy's stood at 1.826 percent, down from 1.839 percent.


© 2015 AFP

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