Post date: Jan 03, 2013 4:22:36 PM
There could still be plenty of room left in the French trade, says Reuters' Will James.
LONDON, ENGLAND, UK (JANUARY 03, 2012) (REUTERS) -
"(QUESTION: Will, a record low yield of 2.07% that France paid today. Good news forParis obviously, but is this as good as it gets for France?)
It was difficult to say. I mean this bond, the 10-year in particular, had been flagged up as good value relative to surrounding bonds beforehand so that explains the good demand there, but yields are extremely low. There's still some juice left in the trade over Germany. We're not quite at the lowest spread levels there, we're at about 65 basis points. We got to around about 50 basis points late last year. So depending on which way you look at France, there is maybe some more room in that. (QUESTION: So is France, I mean you're talking about the spread over Germany, 65 basis points. That would suggest that France isn't core, but is France core or not?)
Plenty you talk to, there are plenty of traders that we speak to inEurope who are willing to- who are keen to short France but they're not willing to go in on that trade yet, you know, the debt budget trade. They don't want to pull out France. And part of the reason for that is that there's so many Asian central banks who love French debt, love that pick-up and still treat is as core. So it's difficult to go against the weight of buying from elsewhere in the region.
(QUESTION: That's France. Spain today, the 10-year yield nudged or thwarted with 5%, going below 5%. Is that on the cards? And if so, is that a big deal?)
Yeah. It will be interesting to see yields fall below that. Whether it's a big deal, I'm not so sure. There's so much still to be decided in Spain. Not a lot has changed in terms of whether they're going to get a bailout or not. We're still in limbo there really. What the real test will really be in January is the supply - January, February, March, first quarter.
(QUESTION: How much have we got coming out from Spain?)
We've got a lot. They need to issue, we estimate taking of banks, we think around about €100 billion. That could rise easily to €120 billion if they need to finance their regions which they do at the moment. So to put that into perspective, that's €5 billion every bond sale, every two weeks for the whole year, so it's a big ask."