Yields on French government bonds rise to over five percent

Concerns about state finances, mass protests against high living costs and riots in many places – the situation in France is more than tense. The yield on ten-year French government bonds has now broken the five percent mark, reaching its highest level in 24 years. This is the latest sign of investors' growing concerns about the ability of the euro zone's second-largest economy to repair its struggling public finances. At its peak, the return climbed to 5.002 percent. Most recently it was just under five percent, with an increase of eight basis points.

“The situation in France is extremely complex and worrying for investors,” said the chief economist at Hamburg Commercial Bank, Cyrus de la Rubia, to the Reuters news agency. "The violent protests coincide with a weakened government that has neither a majority nor the fiscal leeway to address the rising cost of living." It must be assumed that no budget will be drawn up before the presidential elections in spring 2027 - let alone that a reform to stabilize state finances can be implemented.

Government bond yields ‌have risen worldwide this year. The reason is rising inflation as a result of higher energy prices, which has caused many central banks to raise interest rates. In addition, the governments of industrialized countries are struggling with rapidly growing mountains of debt. France's borrowing costs have risen more sharply than those of most comparable countries.

Yield on federal bonds increased to 3.41 percent

The prices of German government bonds fell slightly after the price gains from the previous day. The trend-setting Euro Bund future fell by 0.05 percent to 121.58 points in the morning. The yield on the ten-year federal bond rose to 3.41 percent.

The risk premium that investors demand for French bonds compared to ten-year German federal bonds, which are considered safe, was around 157 basis points. This brings it closer to the 2011 level.

The background to the selling pressure is the attempt by a weakened government to get a budget through parliament and reduce the high deficit. The ‌uncertainty ahead of a hard-fought election next year and ‌nationwide protests are putting additional strain on the country's ‌markets.

Last weekend, street battles and looting broke out during nationwide protests against the high cost of living. According to Justice Minister Gérald Darmanin, 123 of those arrested over the weekend are in custody, and around 2,500 others are in custody for questioning. Student associations and groups from the “yellow vest” movement have called for new demonstrations next Saturday.