Most government bond yields are falling today. Not in France, where bonds are taking it on the chin again, boosting yields.
"Le spread," or the extra yield on 10-year French government bonds over German bunds, is fast approaching its high point from the eurozone crisis in 2011. Back then, it reached 1.81 percentage points. This afternoon, it neared 1.75 points.
The European Central Bank developed crisis-fighting weapons in response to that chapter of history. Now, as France's debt problems worsen, investors are asking if it will reach for them.
"The big question of the day is whether the ECB will intervene," Nomura economist Andrzej Szczepaniak says in a note.
Intervention could take several forms, he says.
-- ECB officials could try to jawbone the market through words.
-- They could slow or halt the process of "quantitative tightening" whereby the central bank sells bonds it once bought to boost the economy.
-- But the debate centers on another acronym in the central bank's armory: TPI, or the "transmission protection instrument." The ECB created this tool in 2022, when Italian bonds were taking a drubbing, though it has never been used. TPI allows the ECB to buy securities "to counter unwarranted, disorderly market dynamics."
The problem, Szczepaniak notes, is that there are plenty of good reasons for French yields to rise. He thinks the ECB would only intervene if French spreads widen a lot more and the turbulence seeps into other eurozone bond markets.
Whether to intervene is a politically charged decision, David Marsh, chairman of economics research group OMFIF, wrote earlier this week. "If it wields the TPI, the governing council would be drawn into the political fray months before the presidential election in April 2027," he wrote.
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