Turmoil in French Bonds as Political Crisis Deepens
France's bond yields rose as political instability surged following Prime Minister Sébastien Lecornu's unexpected resignation. This pushed the risk premium over German Bunds to new heights. Markets are speculating on potential snap elections with the far-right possibly gaining influence. Ultra-long bonds faced pressure amidst rising borrowing costs globally.
French bond yields surged on Monday following the unforeseen resignation of Prime Minister Sébastien Lecornu, exacerbating the political upheaval in Europe's second-largest economy. This development caused the yield premium of French OATs over safe-haven German Bunds to climb to its highest point since January.
Investors are closely monitoring the possibility of snap elections in France, with the far-right Rassemblement National expected to significantly influence the future government setup. Meanwhile, the pressure on ultra-long bonds increased earlier due to a historic rise in Japan's 30-year borrowing costs amid anticipation of expansionary economic measures.
Germany's benchmark 10-year Bund yields increased slightly, while shorter-term yields faced declines. In contrast, French bond yields experienced notable increases, highlighting the growing risk premium investors are demanding. As political uncertainty grips, minor adjustments in ECB rate cut expectations have been observed.
(With inputs from agencies.)
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