LIVE MARKETS-It's hard to short French bonds

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

IT'S HARD TO SHORT FRENCH BONDS

The spread between French and German yields has recently narrowed, and while there are reasons to be pessimistic on France and hence to bet on that spread widening again, the nature of the market means it's hard for investors to do so.

The spread between French and German 10 year yields is now under 70 basis points, having been as wide as 88 just a month ago. DE10FR10=RR

Supporting the tightening have been calmer bond markets and Prime Minister Francois Bayrou's survival of a no-confidence vote which paved the way for the adoption of a much-delayed 2025 budget, but, many analysts say, this is a short term move and there are plenty of political and economic hurdles to come, and reasons for spreads to widen again.

The problem is however that is hard to hold an underweight position in OATs for long given how high yields are at present compared to other markets.

"Being short France is very expensive," says Annalisa Piazza, fixed income research analyst and portfolio manager at MFS.

"It's a big market and you lose on the carry. French spreads are wider than Spain, wider than Portugal, wider than Greece in some parts of the curve."

This is particularly difficult if there is no immediate reason for spreads to widen again, just a general sense that they ought to over time.

"It's really hard to keep the position when you see that the majority of the market is not willing to put on a short position because there is absence of very short term catalyst that could lead to another widening to 90 basis points."

"You need to go well over 80 basis points on the 10-year segment to start to lose money," she says.

(Alun John)

FRIDAY'S OTHER LIVE MARKETS POSTS:

STOXX DOWN, LUXURY SECTOR BOOSTED BY HERMES CLICK HERE

EUROPE BEFORE THE BELL: FUTURES MIXED, MARKETS SET FOR WEEKLY RISE CLICK HERE

TARIFF WORRIES WANE, HERMES EARNINGS AWAIT CLICK HERE