European stocks steady as French bond spread widens

European equities began Wednesday on a cautious note, with major benchmarks showing limited enthusiasm to follow Wall Street's overnight recovery. The opening changes:

• Eurostoxx +0.1%
• Germany DAX -0.1%
• France CAC 40 +0.1%
• UK FTSE -0.2%
• Spain IBEX -0.3%
• Italy FTSE MIB -0.1%

The early action offers little to get excited over, but I would argue that the bigger story in Europe at the moment is not in equities but in the bond market.

The yield spread between French and German 10-year bonds has expanded to roughly 154 basis points on Wednesday, breaching the 150 bps level and remaining close to its widest since the Eurozone debt crisis of 2012.

Following a steady ascent since September, the spread has now pushed through the 150 bps resistance that had thwarted earlier efforts to rise this month. Simply put, investors now require a significantly larger premium to hold French government debt compared to German bonds. With France's fiscal difficulties and political uncertainty showing scant signs of abating, it is hard to see what might reverse that sentiment in the near term.

The main concern at present extends beyond higher borrowing costs. It also involves confidence in the eurozone's second-largest economy and the potential for sustained pressure in French bonds to eventually weigh more on the euro and broader regional assets.

And remember, we do not need a full-blown debt crisis for that to happen either.

Therefore, I would not read too much into the absence of selling pressure at the open. Equities may be holding steadier and maintaining a cautious tone, but the bond market is already beginning to show signs of stress.