Unrest in France Increases Risk for Bond Market
The spread between French and German bond yields could widen to 200 basis points by the end of 2027
Early Monday morning, the yield on French 10-year OAT bonds reached 4.86%, while German bonds remained at 3.41%. The French market came under pressure amid protests, budgetary challenges, and concerns over government debt.
Large-scale protests over the rising cost of living and the state of schools took place across France over the weekend. Looting and clashes erupted in several cities, and a historic town hall building in Limoges was severely damaged by fire. The unrest has exacerbated the government's difficulties in passing the 2027 budget and controlling debt ahead of the presidential elections.
According to investment firm Ninety One, without a budget, France's deficit could exceed the European Union's limit by more than double. Sahil Machtani, Director of the Investment Institute at the company, believes that even the adoption of the budget would provide only a temporary solution. Elias Hilmer, a markets economist at Capital Economics, warned of a further widening of the spread between French and German bonds due to financial and political uncertainty.
