The rise in European government bond yields has been widespread since lows in early fall last year, led by Italy and (now) France.
French Economic Uncertainty
As investors turn to the relative safety of bunds, the spread between French and German yields (light blue line below) has risen to multi-year highs. In addition, the economic policy uncertainty index for France (red line below) soared to an all-time high in January.
With elections looming and expectations for uncertainty to remain elevated, the relative selloff in French bonds could have quite a bit further to go–just take a look at the spread back in 2011/2012.
Article by Jennifer Thomson – Gavekal Capital Blog
