Well guess what? France is now in almost the same category as Germany.France sells treasuries at negative yield
France sold six-month treasury bills at a negative yield for the first time, highlighting the reversal in sentiment towards Europe’s second-largest economy from last autumn when the eurozone crisis pushed its borrowing costs higher.
Did you read the rest of the article?
François Hollande, France’s newly elected president, has pledged to bring the national budget deficit down to 3 per cent of gross domestic product by 2013, primarily through tax hikes.
Underlining the appetite for highly rated assets amid uncertainty over the eurozone crisis, five-year UK gilt yields hit a record low on Monday of 0.57 per cent.
“All the major, highly rated economies have extremely short-term rates right now,” said Richard Batty, a global investment strategist at Standard Life Investments.
Nonetheless, for France it is a particularly significant improvement from last autumn when the mounting turmoil in Europe threatened to spill over from the continent’s periphery and into “core” countries like France.
Since peaking at 3.72 per cent in November, France’s 10-year bond yield has fallen to a low this year of 2.26 per cent in early July.
The recovery has been partially driven by the European Central Bank’s provision of over €1tn of three year loans to banks.
This allowed French asset managers to sell some of their holdings of periphery debt to newly liquid banks in those countries and repatriate the capital back to their home market.
Some investors and analysts remain cautious, given France’s large government sector, debt dynamics and economic outlook.
Although the spread, or difference, between Germany and France’s benchmark 10-year borrowing costs has narrowed from the record 190 basis points touched in November, it is still above 100bp, which is exceptionally high compared with the historical average.
“The large risk premium baked into French bonds, which can be seen from the still elevated spreads to German Bunds, could rise over time as investors focus on the structural problems in the economy,” Mr Batty said. “France’s economy is structurally weak.”
Meanwhile, the French corporate sector’s “operational profitability” – or gross operating surplus relative to gross value added – stood at its lowest since at least 1990 in the last quarter of 2011, according to Deutsche Bank economists.
There are at least five important points that you missed:
1. Even François Hollande, the Socialist Extraordinaire, is so alarmed by France’s national debt that he's resolved to bring the budget deficit down to 3 per cent of gross domestic product by 2013, primarily through tax hikes.
2. France's lower rates have been partially driven by the European Central Bank’s provision of over €1tn of three year loans to banks. IOW, more central bank intervention; more centrally controlled economy; less free-market private capitalism. Do you get it now?
3. These are short-term rates, not 10-yr rates. The rates are so low because all of the PIIGS are currently imploding. Spain needs a half-trillion in bailouts; Italy will require $800B ... etc. As a result, all the major economies that haven't yet imploded
have extremely short-term rates right now.
4. Speaking of long-term, 10-yr rates ... the spread between Germany and France’s benchmark 10-year borrowing costs is still above 100bp, which is exceptionally high compared with the historical average. And this large risk premium "could rise over time as investors focus on the structural problems in the economy; France’s economy is structurally weak.”
5. The French corporate sector’s “operational profitability” is at its lowest since at least 1990.
Sometimes in helps to read
the article you post.
v. read (rd), reading, reads
1. To examine and grasp the meaning of (written or printed characters, words, or sentences).
2. To utter or render aloud (written or printed material): read poems to the students.
3. To have the ability to examine and grasp the meaning of (written or printed material in a given language or notation): reads Chinese; reads music.
a. To examine and grasp the meaning of (language in a form other than written or printed characters, words, or sentences): reading Braille; reading sign language.
b. To examine and grasp the meaning of (a graphic representation): reading a map.
a. To discern and interpret the nature or significance of through close examination or sensitive observation: The tracker read the trail for signs of game.
b. To discern or anticipate through examination or observation; descry: "I can read abandonment in a broken door or shattered window" (William H. Gass).
6. To determine the intent or mood of: can read your mind like a book; a hard person to read.
a. To attribute a certain interpretation or meaning to: read her words differently than I did.
b. To consider (something written or printed) as having a particular meaning or significance: read the novel as a parable.
8. To foretell or predict (the future).
9. To receive or comprehend (a radio message, for example): I read you loud and clear.
10. To study or make a study of: read history as an undergraduate.
11. To learn or get knowledge of from something written or printed: read that interest rates would continue to rise.
12. To proofread.
13. To have or use as a preferred reading in a particular passage: For change read charge.
14. To indicate, register, or show: The dial reads 32̊.
15. Computer Science To obtain (data) from a storage medium, such as a magnetic disk.
16. Genetics To decode or translate a sequence of messenger RNA into an amino acid sequence in a polypeptide chain.
1. To examine and grasp the meaning of printed or written characters, as of words or music.
2. To speak aloud the words that one is reading: read to the children every night.
3. To learn by reading: read about the storm in the paper today.
4. To study.
5. To have a particular wording: Recite the poem exactly as it reads.
6. To contain a specific meaning: As the law reads, the defendant is guilty.
7. To indicate, register, or show a measurement or figure: How does your new watch read?
8. To have a specified character or quality for the reader: Your poems read well.
Thank you for the photo of Paris. Very few of us have any concept of what Paris looks like, so your photo is extremely helpful. Even though we live in the Cyber Age, the Internet is virtually devoid of photos of Paris ... so we're impressed that you were able to hunt one down.