Given the bank recapitalization plan announced over the weekend, the France national government may be on the hook to help recapitalize and backstop its banking system. The markets will be full of noise in the next few days and we will be watching the France-German 10-year bond yield very carefully.
This spread, we believe, will be the ultimate voting machine on the final Euro deal to be cut on Wednesday. It recently blew through 100 bps and nothing else matters, in our opinion. Equities feel like they want to run here and are probably not the best indicator of confidence in the Euro plan. Ultimately, this whole exercise is about restoring confidence. The France-German spread should let us know if it has.
It’s going to be an interesting week. Stay tuned.
(click here if chart is not observable)