Mike Riddell, fund manager at M&G, believes yesterday was “the most worrying day” of the eurozone crisis so far and that France has a good chance of losing its AAA rating.
Riddell says the concerns come after the Netherlands, which the market perceives to be the second strongest eurozone sovereign, saw its five-year bond prices fall 1% on a day when Germany has rallied, while France has seen a “full-blown run on its debt” as 30-year bond yields reached 4.43%, the highest point since June 2009. All of this has come on what he says has been a “risk off” day.
Riddell says French 30-year bonds have underperformed German 30-year bonds by 14% since the start of 2011 and 14% since the start of October.
Riddell says the credit default swap market indicates that both France and Austria are likely to lose their AAA rating.
He says: “What does the CDS market, which has arguably slightly led the sovereign cash bond market in the past few years, say about the risk of France or Austria losing their AAA ratings? Pretty much nailed on.”
Markets have held their ground in early trades today. At 0844 GMT, the FTSE 100 stood at 5,519.01.
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