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Although Germany, Finland, the Netherlands and Austria enjoy lower borrowing costs, aside from the periphery and Belgium no eurozone bond market has rallied as much as France’s this year. Paris has even recently sold short-term bills at a negative yield.
“France has performed remarkably well, especially recently”, says Michelle Bradley, a rates strategist at Credit Suisse. “We’ve seen all of the ‘soft core’ countries perform well of late, and central banks still like the yield pick-up they get in France.”
This is a major turnaround from last year, when French debt started to trade in line with the periphery – albeit in a more subdued fashion – and the spread between France and Germany’s 10-year borrowing costs hit a record of 189 basis points. This was caused by concerns over contagion from southern Europe’s turmoil, France’s own indebtedness and weak economy and uncertainty over last year’s elections.
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