France's Borrowing Costs Surpass Spain's for First Time Since 2008

France's borrowing costs surpassed Spain's for the first time since 2008, indicating investor concerns about France's budget deficit and the new government’s fiscal policy. French and Spanish 10-year bond yields briefly traded around 2.98%. ECB rate cut speculation increased after weak eurozone economic data.

France's borrowing costs briefly rose above Spain's for the first time since 2008 on Tuesday, per LSEG data, signaling investor anxiety about the new French government's capacity to handle the high budget deficit.

In morning European trading, the spread between Spanish and French 10-year bonds fell into negative territory with both trading around 2.98% before rising to stand at around 1.5 basis points.

Emmanouil Karimalis, macro rates strategist at UBS commented, 'The market is reacting to developments in France. There is no clarity in fiscal policy and we had negative PMIs yesterday.'

Since President Emmanuel Macron called a surprise election in June, resulting in a hung parliament, the premium for holding French debt has spiked. Newly appointed finance minister Antoine Armand admitted concerns over his young age and lack of experience.

Traders now see a 45% chance of an ECB rate cut in October, following weak economic data that showed a sharp contraction in eurozone business activity.

(With inputs from agencies.)