Record spread between German and French bond rates

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The spread between German and French 10-year government bond rates touched a historic high of 164 basis points on Thursday, amid fears the eurozone debt crisis is spreading fast.

The wide gap in the cost of borrowing between the single currency bloc's two biggest economies reflects worries that France may join Italy and Greece in struggling to fund its debt, while German bonds are highly sought after.

The spread hit 164 basis points -- 1.6 percent points -- shortly before 0830 GMT, before falling to a still high 156 points half an hour later.

By 0930 GMT the interest rate or yield on a 10-year French OAT bond was 3.295 percent, up from 3.189 percent on Wednesday, while that of its German equivalent the Bund was also up slightly at 1.760 percent from 1.719.

While French borrowing costs are growing, they are still much lower than those faced by Italy, which hit record levels on Wednesday and are still more than 7.0 percent, a level seen as unsustainable.

Paris has so far been spared the high drama that has gripped Athens and Rome as their grapple with their sovereign debt problems, but private French banks are seen as overexposed to Greek and Italian debt.

Ratings agencies have warned that France's coveted "AAA" rating for its own government debt could be at stake if it does not appear able to prevent contagion from the weaker Mediterranean economies spreading north.

© 2011 AFP

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