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“Investors in the Asia-Pacific zone will desert the Old Continent”

Tribune. Fifteen countries in Asia and the Pacific signed a Comprehensive Regional Economic Partnership Agreement (RCEP) on November 15, 2020 [Regional Comprehensive Economic Partnership], which has become the most important trade agreement in the world: the signatories represent 30% of the world’s gross domestic product (GDP). The RCEP will increase economic flows between partner countries and will lead, in a very short time, to the weakening of the single European currency.

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The euro is already falling against the yuan, yen, and other emerging currencies. The yuan appreciated 3.3% against the euro in 2020, while the yen gained 4%. This fall in the euro will have a very negative impact on the treasuries of large French companies and on the issue of assimilable Treasury bonds (OAT). Confronted with a weak euro and very low rates, investors from RCEP member countries will desert the Old Continent.

A weak euro with negative rates is like a star that will explode. For these Asian investors, the acquisition of bonds with negative yields allows them to hope to realize a capital gain in the long term or to obtain positive yields… on condition of anticipating an appreciation of the euro against their national currency! The rise in the euro would indeed mean that the conversion into national currency of the interest received and / or the nominal value of the bond at maturity will provide them with additional remuneration due to a more favorable exchange rate. This currency effect can then offset the negative return expressed in euros.

The state deficit in 2021 will be 120% of GDP

More than half of the bonds issued by the French State are held by foreign financial players who are primarily looking for yield. Treasury bonds are listed on the secondary stock exchange during their lifetime. The Stock Exchange makes it possible to buy other French bonds already in the course of life, or to resell others before their maturity. It is the price of the bond that will decide the choice of buyers. The value of the bond will fluctuate depending on the level of interest rates by following supply and demand.

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The European Central Bank (ECB) wants to achieve an inflation rate of 2% in order to increase borrowing rates. It would reduce the debt / GDP ratio by increasing the denominator (the value of GDP). But the growth of inflation must be very slow because if interest rates rise sharply due to inflation, the consequence is an increase in the interest burden for the State and a slowdown in economic growth. .

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