Investors are charging a bigger premium to backstop French bank debt as the country's fiscal and political jitters intensify. As recently as late August, those costs were neck and neck. BNP Paribas SA and Credit Agricole SA show the same pattern, with CDS pricing notably higher than for major peers in the UK, Germany, Switzerland and Spain.
These figures come from data compiled by Bloomberg, with CMAQ as a source, and use the holding company contract where applicable.
The cost of insuring bank debt is one of the market's cleanest fear gauges. Market Briefs covers credit risk free every weekday.
France's 10-year borrowing costs have climbed in recent months, and the spread over German bunds recently reached levels not seen since the euro area debt crisis. The backdrop is unsettled: the national fiscal watchdog called last week's budget plan "optimistic," and polls ahead of next year's presidential vote point to a potential second-round face-off between far-right front-runner Marine Le Pen and far-left rival Jean-Luc Mélenchon.
French bank CDS had already been trading wider than European peers heading into September, after political risk simmered for a couple of years and then flared in recent weeks.
Banks feel sovereign stress two ways: by holding government bonds and by lending into economies where policy shifts can squeeze borrowers. With French credit under the most pressure and some spillover into peripheral markets, keep an eye on how wider bank and sovereign CDS levels could ripple through any funds or notes tied to French credit risk.
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