Most worrying day of crisis so far’ as bond yields spike

M&G bond fund manager Mike Riddell has warned the crisis in Europe has taken a turn for the worse after bond yields in core European countries rocketed yesterday.

Riddell, manager of the group’s International Sovereign Bond fund, said Tuesday’s spike in the yields of French, Austrian and Finnish debt marked “probably the most worrying day of this crisis so far.”

Yields on French 30-year debt soared to 4.43% – the highest level for more than three years – while yields on other core nations also spiked.

Meanwhile nations which have already felt the glare of the spotlight – notably Italy and Spain – also saw yields climb sharply, with Italian yields going back above 7%.

Riddell said Tuesday was clearly a ‘risk off’ day, but he was concerned about the impact on core European nations. “Even the Netherlands, which the market perceives to be the second strongest eurozone sovereign, is coming under a bit of pressure with Netherlands five-year bond prices down 1% on a day when Germany has rallied,” he said.

He warned France, as well as Austria, are now seeing “a full blown run on debt”, with little chance the nations can keep its prized AAA-rating after CDS costs widened sharply to 235 basis points.

Austria CDS is now at 222bp, compared to the 98bp cost of insuring German debt.

He said: “What does the CDS market, which has arguably slightly led the sovereign cash bond market in the past few years, say about the risk of France or Austria losing their AAA-ratings? [It is] pretty much nailed on.”

 

This article was first published on Investment Week

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