France is on fire. Bond yields just hit 5% for the first time since July 2002. Analysts call this a "signal." I call it Tuesday.
Rioters looted luxury boutiques and supermarkets. Carrefour, Europe's largest food retailer, cut its profit margin targets because of the riots. Imagine explaining to your board that the shelves were not the problem. The shelves were gone.
The spread over German Bunds sits near 150 basis points. That is the extra return investors demand to lend to Paris instead of Berlin. Germany is the friend who pays you back on time. France is the friend who says the check is in the mail while setting the mailbox on fire.
Three questions face investors. Can the government pass its budget? Which sectors are exposed? Will Saturday be worse? I have one question. Why do you think you know?
Emmanuel Macron vowed there would be no repeat of last weekend's violence. He said this the way you tell yourself you will only have one drink.
Moody's kept France at Aa3 with a negative outlook. That is a credit agency shrugging in a very expensive suit.
Fund managers are now "assessing." That means refreshing a screen and breathing through the mouth. Marine Le Pen and Jean-Luc Melenchon lead the polls. Analysts call that the least favourable scenario for cutting the deficit. They are right, and it will not help you.
Retail traders will read this and buy the dip. In what? They do not know. A French bond? A baguette ETF? A candle shaped like the Lyon tourism office? Lyon's tourism office was set on fire, so that one is at least a real asset class.
The 10-year OAT rose more than 20 basis points in a week. The other big economies averaged 5.7. France is an overachiever. It finally found something it leads the world in besides cheese.
The chart says resistance at 5%. The chart also said that last time. The chart does not read the news. Neither should you.
Buy French bonds if you must. The yield is great, and so is the fire.
Photo by Norbu GYACHUNG on Unsplash
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