While the widening of yields between Italy and Germany balloons out to record levels, the next stop for the debt contagion could very well be France. As shown in the chart below, spreads between French and German 10-year yields are also coming unanchored. As of this morning, yields on 10-year French sovereign debt have widened out to 145 bps more than similar duration German debt. That's a widening of more than 50 bps in the last two weeks.
At this point, the spreads between France and German debt (145 bps) are nowhere near the spreads between Italian and German debt, but the direction and the velocity is alarming. As this debt contagion spreads across Europe, you can only hope that policymakers in Washington are watching, and can come to some agreement on how to prevent it from coming here.
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