Bloomberg News

German, French Curves to Flatten on Crisis Response, HSBC Says

October 17, 2012

German and French bond yield curves will flatten as a result of the introduction of measures to tackle the euro-area debt crisis, according to Steven Major, global head of fixed-income research at HSBC Holdings Plc.

The difference in yields between two- and 10-year German bonds is 154 basis points, or 1.54 percentage points. The gap between similar French securities is 205 basis points.

“Germany can get even flatter,” and the 10-year bund yield may fall to 1 percent, Major said at a seminar in London today. The yield slid to its record-low 1.127 percent for the first time in June and closed at 1.63 percent today in London trading. Similar-maturity French government debt yielded 2.25 percent.

Two-year German bunds yield 0.1 percent, compared with 0.2 percent for French sovereign debt of the same maturity.

The yield curves of the region’s so-called peripheral nations, such as Spain and Portugal, will steepen as the European Central Bank introduces its plan to purchase unlimited quantities of the debt of struggling economies, Major said. The program, called Outright Monetary Transactions, will target government bonds with maturities of one to three years, ECB President Mario Draghi said on Sept. 6.

The additional yield investors demand to hold Spain’s 10- year bonds over two-year notes was 271 basis points today, up from as little as 73 basis points on July 25.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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