Spread between French, German bonds hits new record high
The spread in the rate of return on French and German government bonds rose to a record high on Wednesday as investors snapped up Berlin's debt as a safehaven amid rising eurozone turmoil.
Around 1345 GMT the spread between the benchmark 10-year French and German bonds hit 1.47 percentage points. The difference, a measure of perceived difference in risks, was 0.45 percentage points one year ago.
Bond strategist Ciaran O'Hagan at Societe Generale said the widening in the spread, a key measure of risk aversion, reflects concerns over the future of the whole eurozone.
At the same time, O'Hagan said it should not be seen as targetting France in particular, although there have been worries about France's strained public finances and Paris has adopted a series of austerity measures with the express aim of protecting its top 'AAA' credit rating.
The latest twists in the eurozone debt crisis, topped by Italian Prime Minister Silvio Berlusconi's pledge to resign as soon as his government's latest austerity package is passed in parliament, stoked even more market turmoil Wednesday.
Dealers said that Berlusconi's decision, originally welcomed, now seemed to promise only more uncertainty to add to the political impasse in Greece, pushing Italy's borrowing rates up to record highs and making German bonds even more of a refuge.
In late afternoon trade, the Paris stock market was down 2.01 percent, with Milan slumping 4.66 percent while Frankfurt lost 2.57 percent and London shed 2.41 percent.
© 2011 AFP