French Credit Looks Attractive Due to Cheap Pricing — Market Talk

What happened

BNP Paribas analyst Viktor Hjort says French corporate bonds look attractive because their pricing is cheap and markets are overestimating French risk. He expects growth to stay stable in coming months and the budget to pass, and says French banks’ sovereign-risk exposure is lower than Italian or Greek banks’ during the eurozone crisis.

Confirmed

Global impact / market context

If Hjort’s assessment is right, investors may be demanding too much extra return to hold French corporate bonds. That could make them more attractive to buyers and, if demand rises, reduce companies’ borrowing costs when they issue bonds; neither outcome is established in the article.

Analyst inference

The argument rests on expected stable growth and passage of the budget, alongside Hjort’s comparison of French banks’ exposure to government risk with Italian and Greek banks during the eurozone crisis. These are reasons for his view, not evidence that the perceived risk has already fallen.

Analyst inference

What to watch

1. Watch whether French growth remains stable over the coming months, as Hjort expects; weaker growth would challenge one of his stated reasons for calling French credit risk overpriced. Analyst inference
2. Watch whether the French budget passes, another assumption behind Hjort’s view; failure to pass could undermine his case that investors are overestimating the country’s risk. Analyst inference
3. Watch for changes in demand and pricing for French corporate bonds; stronger demand could lower borrowing costs for issuing companies, while the article reports no such change yet. Analyst inference

Evidence

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