French yields are near levels not seen since 2002. Why that could give U.S. Treasurys a boost
French and other European bond yields are surging, which may prompt a flight to the U.S. Treasury market, investors and strategists told CNBC.
TL;DR
- French 10-year bond yields reached their highest level since July 2002, with the risk premium over German debt widening significantly.
- Concerns over France's national debt, budget deficit (projected at 5.4% of GDP), and political uncertainty are driving up borrowing costs.
- Student protests demanding increased public school investment add to concerns about France's ability to control public debt.
- The turmoil in French bonds is pressuring other euro zone bonds, with German, Dutch, and Italian yields also reaching multi-year highs.
- U.S. Treasurys are seen as a potential safe-haven asset due to relative economic strength and a consistent debt repayment record.
- U.S. Treasury yields are currently more attractive than many European equivalents, though the supply of U.S. Treasurys has also increased substantially.
- Investors see more opportunity in U.S. bonds than Euro bonds due to yield differentials, but diversification into international bonds is also recommended.
- Banks could potentially benefit from higher bond yields through increased net interest income, but this may be offset by other factors like mark-to-market losses.