French Bank Bond Default Protection Costs Surpass Other Major European Banks as Fiscal Fears Spill Over

Deep News
10/05

As concerns about France's fiscal and political situation spread into credit markets, the cost of insuring French bank bonds against default has exceeded that of other European bank bonds.

According to compiled data, on Monday the annual cost of a five-year default protection contract on 10 million euros ($11.2 million) of Societe Generale senior debt reached 103,000 euros, about 16,500 euros higher than the default protection cost for similar Deutsche Bank bonds. At the end of August, the two costs were exactly the same.

Data shows that credit default swap (CDS) spreads for BNP Paribas and Credit Agricole are also far higher than those of major banks in the UK, Germany, Switzerland, and Spain.

France is deeply mired in fiscal and political turmoil. The country's fiscal watchdog last week described the government's budget proposal as "optimistic," and investors are anxious about next year's presidential election. Recent polls show the election could go to a second-round runoff, with far-right frontrunner Le Pen facing far-left rival Jean-Luc Melenchon.

In recent months, French 10-year government bond yields have climbed sharply, and the yield premium relative to German bonds of the same maturity recently rose to its highest level since the European debt crisis.

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