European government securities markets showed mixed dynamics on Thursday: the yield on French bonds exceeded 5% and reached 24-year highs.
On Thursday, European government bond markets showed mixed dynamics. The worsening fiscal-political crisis in Paris led to the growth of the basic yield on French government bonds above 5%, which became a new 24-year high. Investors demanded a significant risk premium when holding Parisian debt.
The yield spread between 10-year French OATs and German bunds widened to approximately 157 basis points, approaching the levels of the 2011 eurozone debt crisis. Short-term French securities also came under pressure: their yield rose to a two-week high of 3.754%.
The weakened administration of President Emmanuel Macron faces difficulties in passing measures through parliament to cut spending to reduce the budget deficit to 5.4% of GDP. Uncertainty around next year's presidential elections and mass protests against the rising cost of living, which forced the introduction of a curfew in Paris and Nice, undermined investor confidence.
As a result, the cost of borrowing for France approached that of Italy and Spain. Italian BTP bonds avoided sharp pressure: their yield was 4.594%. Prime Minister Giorgia Meloni approved the tightening of security measures after local protests in Milan.
Greek markets remained stable thanks to the credit rating upgrade and budget execution. German bunds retained their status as a risk-free benchmark with a yield of around 3.42%. Traders are pricing in an over 80% probability of an ECB rate hike by 25 basis points in December to 2.75% amid persistent inflation.