Investors: French government bonds under pressure after unrest

The riots at the weekend are unsettling investors. The risk premiums for French government bonds continue to rise. The gap to German papers has increased again.

Frankfurt. After the weekend's unrest, French government bonds came under pressure again on Monday. The yield on government bonds with a term of ten years rose by eight basis points to 4.88 percent at the start of the week.

A basis point is equal to one hundredth of a percentage point. This means that French government bonds performed worse than interest-bearing securities from other euro countries. The risk premium compared to ten-year German federal bonds, which are considered a reference value for the currency area, grew by seven basis points to 1.44 percentage points. This is the highest value in two weeks.

At the weekend, hundreds of thousands of people demonstrated in France against the high cost of living and for better education. Later there were riots in Paris and other cities. According to official information on Sunday, 2,000 people were arrested and 600 police and firefighters were injured. President Emmanuel Macron condemned the violence in a televised address on Sunday evening.

Jim Reid, an analyst at Deutsche Bank, expects the events to make it harder for international investors to buy French government bonds without hesitation. “With an already difficult fiscal backdrop in France and the 2027 election approaching, the weekend adds another layer of political risk to markets,” Reid said.

According to Mike Bell, market strategist at RBC BlueBay Asset Management, the protests are not helpful for international investors who were considering investing in French bonds. “It looks like either the bond markets are rebelling, people are rebelling, or both,” Bell told US broadcaster CNBC.

In recent months, government bond prices have fallen worldwide. If bond prices fall, yields rise in reverse. However, France's government bonds were viewed particularly critically on the market. The risk premium, also known as the spread, between ten-year bonds from France and Germany was higher in October than it has been since the euro debt crisis. Pessimists fear a new euro crisis.

Analysts and strategists are concerned about the country's high national debt and budget deficit. At the end of the second quarter, the debt ratio was 119 percent of gross domestic product, and next year it is expected to be almost 122 percent. In a difficult political environment, Macron's government is trying to launch a budget with billions in savings for 2027. The presidential elections are coming up next spring.

The French stock index CAC 40 lost around 1.6 percent on Monday, slightly more than the leading Euro index Euro Stoxx 50. The euro lost 0.2 percent of its value against the dollar.

Investors' trust in French bonds could be tested again as early as Friday. Then the rating agency Moody’s reassesses France’s creditworthiness.