Eurozone government bond yields held near elevated levels on Monday. Short-term French papers came under pressure due to mass protests in Paris.
Eurozone government bond yields remained near elevated levels on Monday. Short-term French papers came under pressure amid serious social unrest in Paris, which heightened fiscal and political risks across the currency bloc.
Yield on two-year French bonds rose to 3,603%. Ten-year French papers remained virtually unchanged at 4,812%, maintaining a wide risk spread compared to German ones. The benchmark yield on ten-year German bonds barely changed and stood at 3,412%. Two-year German yield edged up slightly to 3,080%.
Political instability in France has increased the risk premium on government bonds. Mass protests against rising cost of living, cuts in public services and President Emmanuel Macron's budget policy turned violent, leading to arrests and destruction. France's budget deficit stands at 5.4% of GDP, and the cost of insuring debt through credit default swaps is near multi-year highs.
European Central Bank President Christine Lagarde spoke on Saturday and noted that the rise in global bond yields is tightening financial conditions in the eurozone. This increases borrowing costs for households and businesses, curbs economic growth and reduces inflation. Lagarde also pointed out that yield curves remain under pressure due to large supply volumes, growing debt burden and competition for capital from investments in artificial intelligence infrastructure.
Money markets expect another ECB rate hike of 25 basis points in December, which will raise the key rate to 2.75%.