French 10-year bonds were priced slightly higher than their Spanish counterparts for the first time since the 2008 financial crisis, with yields reaching 2.97% on Wednesday. This shift raises concerns about investor confidence in France, the second-largest economy in Europe, as it faces pressure to address its mounting debt and present a budget. Prime Minister Michel Barnier’s government is struggling to close a significant budget deficit, which is expected to exceed 6% of GDP this year.
Investors are doubting France’s ability to meet the EU’s fiscal rules, as the government has requested more time to submit its plan. In contrast, Spain is gaining investors’ trust, with the Bank of Spain increasing its growth forecast for the year. However, the country still faces a high debt level of around 108% of GDP.
Despite a slight decrease in bond yields on Thursday, the premium for French bonds remained around 2.96%, while the Spanish equivalent was 2.95%. The upcoming budget presentation on October 1st will be crucial for France to address its financial challenges and regain investor confidence. Spain’s positive economic indicators contrast with France’s struggles, highlighting a potential shift in investor sentiment towards these European economies.
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