French Bond Sell-Off Deepens as Protest Risks Fuel Investor Worries
French government bonds and shares fell after violent protests over the weekend, as investors weighed political uncertainty against the government’s effort to…
French bond sell-off intensifies after violent protests unsettled investors and raised fresh questions about the government’s ability to curb public spending. French government debt and stocks fell as markets assessed the impact of unrest on plans to reduce the budget deficit.
The pressure was visible in borrowing costs. The 10-year French OAT yield rose 14.1 basis points to 4.925%, while German 10-year bund yields increased 4.2 basis points to 3.453%, Yahoo Finance reported, citing LSEG data.
The difference reached 147.3 basis points. Monday’s intraday high was 148.3 basis points, the highest since Oct. 5, according to the same report.
That gap matters because it reflects the extra return investors demand to hold French debt rather than German bonds. A wider spread can make government borrowing more expensive as France tries to prepare its next budget.
Unrest adds to budget pressure
Violence escalated during a nationwide protest on Saturday and resumed with riots across Paris on Sunday evening, Yahoo Finance reported. The Guardian said protests over the weekend led to thousands of arrests, public buildings being burned and hundreds of shops looted across the country.
The unrest followed weeks of demonstrations that began around conditions in schools and expanded to include the cost of living and public services. The Guardian reported that tens of thousands had attended peaceful marches calling for more teachers and repairs to deteriorating schools, while groups clashed with police in Paris, Bordeaux, Nice and Marseille.
“What started as student/education unease about a month ago morphed into broad protest against the rising cost of living, declining public services and overall frustration against the Macron administration,” KBC Bank analysts said in a note, according to Yahoo Finance.
Investors are also focused on the government’s planned budget-deficit reduction. French politicians must manage domestic unrest while trying to move next year’s budget through parliament, KBC Bank analysts said.
The government’s challenge is immediate. The Guardian reported that its proposed budget would cut pension spending and funding for government departments, excluding defence. Political pressure could derail those plans, the newspaper said, potentially adding to borrowing needs.
Markets reflect political risk
France’s bond decline coincided with a fall in equities. The Guardian reported that the Cac 40 index fell 1.4%, compared with a 1.1% decline in the pan-European Stoxx 600 index. French banks Société Générale and BNP Paribas each fell by more than 3%.
The euro also weakened. It slipped 0.4% at one stage against the US dollar to $1.1197, according to The Guardian. The newspaper also reported that sterling rose to €1.188 against the euro on Monday morning, as the euro touched a 17-month low against the pound.
The Guardian cited analysts who warned that the protests could make investors less comfortable holding French government bonds, known as OATs. Jim Reid of Deutsche Bank said the unrest “won’t make it easy for the international community to be totally comfortable buying OATs”.
Debt and deficit figures have added to investor concerns. Yahoo Finance reported that French public debt was above 119% of gross domestic product and that the deficit was expected to remain substantially above the European Union’s 3% threshold. The Guardian, citing figures for 2025, put France’s debt-to-GDP ratio at 115.6% and its budget deficit at 5.1%.
Those figures come from different reports and reference different periods or measures. Both accounts describe a government facing pressure to control public finances while the market demands higher returns to lend to France.
Claudio Wewel, an FX strategist at J. Safra Sarasin Sustainable Asset Management, said investors were increasingly questioning the government’s ability to stabilize public finances, according to Yahoo Finance.
The 10-year yield reached 4.925%.
Source: theguardian.com
