French Bond Yields Soar 14 bps in a Day... Near 5% as Protests Escalate

Up 14.1 Basis Points from the Previous Day
Public Debt Exceeds 119% of GDP
Budget Deficit Expected to Reach 5.4%

Protests against the French government's plan to reduce the budget deficit have turned violent, pushing long-term bond yields close to 5%. With accumulated public debt exceeding 119% of gross domestic product (GDP) and political instability adding to the strain, investors are increasingly concerned about whether the French government can restore fiscal health.

On the 19th (local time), a woman walks past a Lancel luxury handbag store in Lyon, France, that was vandalized with graffiti during a protest against the deteriorating education environment and rising cost of living. The words "Death to capitalism" are written in French on the store's glass windows. Lyon, France = Reuters-Yonhap News.

According to The Wall Street Journal (WSJ) on Oct. 19 (local time), the yield on French 10-year government bonds closed at 4.925%, up more than 14.1 basis points (one basis point equals 0.01 percentage point) from the previous trading day. This is the highest level in more than 20 years. The yield spread with German 10-year government bonds, considered a benchmark safe-haven asset in Europe, widened to as much as 148.3 basis points during the session, its widest since Oct. 5. German bond yields rose just 4.2 basis points to 3.453% that day.

Stock markets across major European countries also fell across the board, in contrast with U.S. markets, which rebounded the previous day, led by technology stocks. Major European markets all closed down more than 1% that day: Italy (-1.55%), Spain (-1.49%), Germany (-1.18%), France (-1.11%) and the United Kingdom (-1.08%).

Anti-government protests took place nationwide in France over the previous weekend, with violence erupting in major cities, including Paris. The protests, which initially began with students' discontent over their educational environment, spread nationwide as concerns over the rising cost of living and deteriorating public services combined with dissatisfaction with the current government led by Emmanuel Macron.

France's public debt currently exceeds 119% of GDP. The budget deficit is also projected to reach 5.4% of GDP this year. The French government is pursuing 54 billion euros in fiscal improvements to reduce next year's budget deficit to 5%, but is already facing difficulties in passing the budget. According to LCP, a French parliamentary news outlet, the National Assembly vote on the revenue portion of the budget, originally scheduled for Oct. 20, was postponed because review of amendments had been delayed. Markets had been watching the vote as a test of the government's ability to reduce the budget deficit.

Political uncertainty ahead of the presidential election scheduled for next April is also weighing on the bond market. The leading presidential contenders include Marine Le Pen and Jordan Bardella of the far-right National Rally (RN), centrist Edouard Philippe, and left-wing politicians Jean-Luc Melenchon and Raphael Glucksmann. Euronews noted that, beyond passing the budget, it will be important to see whether the next government can honor its commitment to improving the country's fiscal health over the long term.

This content was produced with the assistance of AI translation services.