Optimism in French Bonds Amid Political Uncertainty

On Wednesday, French bonds surged ahead of their eurozone counterparts, buoyed by hopes that the country's parliament might finalize a budget by year-end, despite the ongoing political turmoil. This comes as a breath of relief following a turbulent start to the week due to political developments in France and Japan.

Interim Prime Minister Sebastien Lecornu, who resigned Monday, expressed optimism regarding a potential budget deal by year's end, which would decrease the chances of a snap election. This news drove France's 10-year bond yield to its lowest point since mid-September, dropping 5 basis points to 3.52%.

Meanwhile, German bonds also saw a decrease, with the 10-year yield down by 3 bps to 2.679%, narrowing the yield gap with French bonds to 84 bps. Analysts remain cautious, attributing the shifts to short covering amid France's persistent deficit challenges. In contrast, Germany saw unexpected declines in industrial output due to the automotive industry's struggle.

(With inputs from agencies.)