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FRENCH CORPORATE SPREADS: GLASS HALF FULL OR HALF EMPTY?

The spread between French and German government bond yields DE10FR10=RR is around its tightest in months at 67 basis points, but remains wide by historical standards.

Goldman analysts have taken a look at how corporate bonds have been holding up.

The answer is it depends how you look at it.

Versus OATs, French corporate bonds have done well, and the spread between OATs and French corporates has narrowed sharply.

Goldman says this is warranted as "credit quality among French corporations has been on a more benign path than public balance sheets over the past five years."

If you compare French corporate bonds with other European ones however, the picture is different.

Goldman says they are seeing underperformance of French issuers versus the broader euro investment grade market, "which we think is evidence of a growing country premium embedded in corporate bond spreads."

(Alun John)

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