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- France's 10-year OAT spread over German Bunds hit +160 basis points on Friday — levels not seen since the 2011/12 eurozone debt crisis — before narrowing by about 5 basis points to 140 bps on Monday
- Deutsche Bank's Jim Reid said the Friday spread put markets "on the edge of a mini panic" and called it the key gauge to watch for euro-area sovereign stress
- Reid and team now expect the European Central Bank to deliver perhaps one more 25-basis-point rate hike, down from the three additional hikes markets had priced just days earlier
- Unlike the 2011/12 crisis centered on Greece and other "periphery" borrowers, the current spread widening reflects stress at France, a core eurozone sovereign
Why it matters: ECB rate-hike expectations shifted from three additional 25-basis-point moves to just one possible final hike within days, a rapid repricing that lowers borrowing costs for the eurozone periphery while leaving France's core-borrower premium stuck at 140 bps over Bunds.
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