France: 10-year benchmark yields brief visit into negative territory - ING

Julien Manceaux, senior economist at ING, points out that something of an historic event happened in France following Mario Draghi's speech in Sintra on 18 June as the benchmark rate on 10-year government bonds fell below 0%, following German bonds into negative territory.

Key Quotes

“The speech went a little further than Mr Draghi’s comments in Frankfurt (after the June monetary policy meeting) where he only mentioned, in response to a question, the fact that new easing measures had been discussed. By saying in Sintra that "in the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required", he boosted the likelihood of a further deposit rate cut (currently at -0.40%) starting in July.”

“French 10-year yields did not stay negative for long, merely minutes, but shorter maturities (up to 6 years) were already negative.”

“These developments should indeed incentivise the French Government to continue to increase the general maturity of the public debt, in other words, to ensure that it is financed at low rates for a longer time. The average maturity has already fallen from 8 to 10 years between 2011 and 2018, and that trend should continue.”

“This also has the effect of easing the debt burden on public finances, giving some budgetary space for the projects announced by the Prime Minister, Edouard Philippe for the second half of the presidency.”

“If there's going to be spending, projects which boost potential growth must be a priority. It's wrong to say that negative rates suddenly allow the state to indebt itself forever.”