France’s debt: too heavy to lift, too big to spot France’s debt: too heavy to lift, too big to spot

Anyone who spent too much time on YouTube in the early 2010s will probably remember the Honey Badger. The Honey Badger is part of the Mustelidae family which includes Wolverines, Otters and, you guessed it, Badgers. They live mostly in Africa, the Middle East and India…and oh, they are super cute too.

Across much of the developed world, governments are spending an increasing share of their tax revenues servicing debt.

The bond market has taken control from Warsh and Bessent, and in some ways is now testing or even tormenting them.

For those who follow bank returns for a living, Japan’s push toward low-to-mid-teen RoE/RoTE (return on equity/return on tangible equity) over the medium term is one of the most striking re-ratings in the sector – a genuine regime change against the mid-to-high single digits of the past few decades.

For most of the euro’s existence, investors have operated under an implicit assumption: Germany would always be there.

It is 20 years ago this month that I sat in a pitch and listened to an investment bank describe their latest stroke of genius. In 2006, the Constant Proportion Debt Obligation (CPDO) was hailed as a financial innovation that appeared to offer something for nothing: a AAA-rated security paying a meaningful premium over cash.

European natural gas prices are rising again, storage levels are lower than expected, and memories of the 2022 energy crisis remain fresh. But does this really constitute a new energy crisis for Europe, and more importantly for bond investors, does it change the ECB’s policy outlook?

Why aren’t we talking more about El Niño?

In a world of tight credit spreads, one rating bucket flashes value. The European CCC index offers 1,306 bps over government bonds, suggesting generous compensation for taking credit risk.

We previously blogged on which area of government bond curves investors should have exposure to if they want to receive the greatest benefit from the passage of time. In a normal/upwardly sloping yield curve environment, the yield of a bond will fall (and its price will rise) the closer it gets to maturity. Or, as it rolls down the curve.