Muted Markets: France's Government Collapse and Bond Reaction
Following the collapse of the French government, Eurozone bond investors remained calm, awaiting President Macron's next steps. The market had already priced in potential outcomes, such as appointing a new prime minister or snap elections. Concern about France's public debt remains, influencing bond yield spreads.
On Tuesday, Euro area sovereign bond investors reacted minimally to the anticipated collapse of the French government. They now await President Emmanuel Macron's subsequent steps, including the possibility of snap elections. A key focus lies on the spread between French and Italian bonds, with French yields nearing a potential rise above Italy's.
President Macron plans to appoint a new prime minister following Francois Bayrou's confidence vote loss. Investors worry that a new minority government may struggle to manage public debt, possibly increasing risk premiums on French sovereign bonds.
Market analysts observed that the potential changes were already expected, noting stability without immediate elections. Some analysts voiced concerns over a weaker France in Europe, highlighting potential challenges in international relations.
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