The yield on French sovereign bonds hits a record, reflecting investors’ concerns about political and economic uncertainties.
Global Bond Tension
This Thursday, the yield on ten-year French sovereign bonds reached 3.40%, a level not seen since 2011. This jump is part of a global trend of rising rates on the financial markets. The UK ten-year yield had also peaked on Wednesday, while US bonds are seeing a similar surge this week.
This movement is fueled by several factors. Central banks, after years of expansionary policies, are now reducing their balance sheets by ceasing to buy sovereign securities. At the same time, governments are preparing to issue record volumes of debt. In the United States, the outlook for President-elect Donald Trump’s economic policies is adding to the uncertainty. Its protectionist measures could lead to a resumption of inflation, thus complicating the task of the Federal Reserve.
In this already tense environment, France stands out for its own fragilities. Current political instability, particularly around a possible challenge to pension reform, is fueling investors’ fears. François Bayrou recently raised this prospect, casting doubt on the country’s economic and budgetary trajectory.
A French specificity: political instability
This distrust is reflected in the widening of the spread, the difference between French and German bond yields, which reached 86 basis points on Thursday. This level, which has been rising steadily since the start of the year, reflects a growing mistrust of French debt.
The increase in the yield on sovereign bonds represents a major challenge for France. By increasing the cost of debt issues, it complicates an already delicate budgetary equation. The country plans to raise 300 billion euros this year, a considerable sum which risks being increased by this increase in rates.
For investors, the French situation is doubly worrying: not only does it take place in an unstable international context, but it is also aggravated by national political uncertainties. As a crucial year for public finances approaches, market nervousness could well continue to intensify.
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