A sell-off in French government bonds reignited on Monday after a weekend of riots over the cost of living. The 10-year yield rose to 4.93%, and the spread to German borrowing costs climbed to 1.47 percentage points. Authorities introduced partial curfews as the government admitted its policing failed.
France's 10-year government bond yield rose 0.14 percentage points to 4.93% on Monday, one of the market's worst days this year. French bonds underperformed Eurozone peers as investors reacted to a weekend of unrest.
Riots push the spread to Germany higher
Nationwide demonstrations on Saturday brought together students protesting education conditions and citizens angry about rising prices on everything from petrol to rent. They descended into riots and widespread looting.
The spread of French 10-year borrowing costs to Germany's, a key barometer of investor concern, climbed back to 1.47 percentage points. The FT reports it touched that level in recent weeks but had not previously seen it since the Eurozone debt crisis. Gordon Shannon of TwentyFour Asset Management said the protests made investors more reluctant to hold the debt.
Meanwhile, the Cac 40 stock index dropped another 1.1% on Monday, with bank shares among the bigger fallers.
Curfews and a policing failure
The government said local curfews would be applied when necessary. In Paris, authorities set a curfew from Monday night through to Tuesday morning for Place de la République and Les Halles, and banned protests in certain areas. Similar measures were implemented in Lyon.
Interior minister Laurent Nuñez admitted the police deployment was too small for the scale of the protests. He said domestic intelligence services had underestimated them: "We had forecast 200,000 demonstrators," he said, whereas more than 550,000 turned out. Macron refused his offer to resign.
The government said rioters looted at least 3,000 stores and businesses on Saturday. The French Retail Federation said the damage could cost several hundred million euros.
Politics keeps pressure on bonds
Bond investors have pressured France for weeks over its inability to cut public spending. They also anticipate political instability from the presidential election in six months, in which Marine Le Pen is polling as frontrunner. Macron's minority government faces a battle over its proposed budget, which could see it toppled by the end of the year.
France has also suffered the biggest jump in borrowing costs in the G7 since the Iran war began, as global concerns about inflation and debt issuance mix with worries about its public finances.
Source: Financial Times
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