How high is the ECB’s pain threshold? We might be about to find out

140. You can see it next to me there. 140. That is the number of basis points separating the yield on French 10-year paper from its German counterpart. That is up by around half a percentage point since the beginning of September according to Else data. Putting the spread at levels and this is the important point. Putting the spread at levels not seen since the Euro zone debt crisis. Look, this sell off in French debt means that more than a third of the country's high-grade corporate paper is now indicated to trade at a lower yield than its sovereign counterpart. According to Bloomberg data, with investors charging companies such as Elicid less for capital than they are charging for the French state. This doesn't happen very often despite the fact that some of those corporates out there are brilliantly run. They have great cash flow. They have dividend. They do not have balance sheet pressures. You very rarely see top grade IG corporate credit trading lower than its national sovereign. Now look, we've already discussed the prospect of ECB intervention on this show. Earlier this week, Bank of France Governor Emanuel Muna said the conditions are not in place for it to do so, but the prospect remains. ECB President Christine Lagard has reportedly told Euro area finance ministers the central bank has instruments to stabilize markets should it be needed. One of those instruments is and we've talked about this a lot, the TPI, the transmission protection instrument, the so-called anti-fragmentation tool which was conceived in 2022 to counter unwarranted disorderly market dynamics. Goldman Sachs says this could be used to buy time for a policy adjustment in a similar dynamic to the UK's mini budget under Liz Truss 4 years ago. But Bank of America points out that the ECB's pain threshold is much higher than the markets and that is far from being reached.