Bloomberg News

Noyer Says Euro-Area Spreads Need to Return to Normal Levels

November 30, 2011

(Updates with comment from Noyer in fourth paragraph.)

Nov. 30 (Bloomberg) -- Bank of France Governor Christian Noyer said the level of yields and spreads in the euro area isn’t realistic and Europe has to find ways to bring spreads back to normal.

Economic fundamentals in Europe remain good even as activity has slowed down, Noyer told reporters in Singapore today. The European Central Bank will do what is necessary to maintain price stability, he said, declining to comment on the outlook for the benchmark interest rate.

Europe’s leaders are under increasing pressure to step up their response as the two-year debt crisis spreads from the periphery to core countries, clouding growth prospects and pushing debt yields higher across the single-currency area. Germany failed to sell all debt in an auction last week, while Italy was again forced to pay above the 7 percent threshold that led Greece, Portugal and Ireland to seek bailouts when it sold 7.5 billion euros ($10 billion) in bonds yesterday.

“The level of yields and the level of spreads in the euro area are absolutely not reflecting the reality of risks,” Noyer said. “It’s clear that we have absolutely to find ways to reestablish confidence so that the spreads and the levels of interest rates come back to a normal level.”

Italian, Spanish and French 10-year government bonds underperformed benchmark German bunds today, increasing the additional yield that investors demand to hold the securities.

The difference in yield, or spread, between Italian and German bonds increased 17 basis points to 508 basis points at 7:37 a.m. London time. The yield gap between Spanish and German securities widened nine basis points to 415 basis points and the France-Germany spread climbed seven basis points to 126 basis points.

There is no fear of deflation in Europe yet and the ECB will do what’s necessary against inflation or deflation, Noyer said. The scenario right now is for no recession in France next year, he said.

--With assistance from Paul Dobson in London. Editors: Stephanie Phang, Sunil Jagtiani

To contact the reporter on this story: Shamim Adam in Singapore at

To contact the editor responsible for this story: Stephanie Phang at

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