- The recent turmoil in France's bond market could mark a new chapter for the euro zone's wealthiest economies, with emerging political and fiscal risks fuelling volatility earlier associated with its high-debt members such as Greece or Spain.
The terms"core" and"periphery" became commonplace during the euro zone sovereign debt crisis, which has driven a wedge between the richer north and the more indebted southern"peripheral" countries, both politically and from an investment perspective. "We think French government bonds will increasingly behave more like 'peripheral' rather than 'core' assets," Felix Feather, economist at UK asset manager abrdn, said.
What has helped Spain, Portugal and Greece, largely contain their spreads, is investors' preference for higher-yielding assets, particularly as long-dated bonds yield less than shorter-dated ones right now, known as"yield curve inversion". Konstantin Veit, portfolio manager at major bond investor PIMCO, said he was fairly neutral in terms of positioning between the euro zone's core and periphery, given how much Spanish and Portuguese spreads have narrowed.