Investors sold off French government bonds after a weekend of violent protests, pushing the yield on the country’s 10-year debt as high as 4.94 percent on Monday and widening the premium over German bonds toward levels last seen during the eurozone debt crisis.
With some of the most violent images of the protest involving predominately migrant youths, the social unrest crisis and decades of mass immigration could actually lead to a debt crisis as well.
The sell-off followed days of unrest over the cost of living and conditions in schools that turned into riots, with thousands of arrests, looted shops and damaged public buildings across France, according to French news outlet BFMTV.
Yields rise when bond prices fall, and the jump in French borrowing costs reflected investor concern that the disorder would make it harder for the government to reduce its large deficit and debt.
The gap between French and German 10-year yields, a key measure of the risk premium on French debt, widened sharply and approached or reached its highest level since 2012, according to market data. fSome accounts put the French 10-year yield’s rise at as much as 16 basis points on the day, leaving it near multi-decade highs.
The violence prompted President Emmanuel Macron to condemn what he called “unbridled violence,” while Prime Minister Sébastien Lecornu’s government asked some local authorities to impose curfews and did not rule out a state of emergency.
France has been struggling with weak growth, a budget deficit projected around 5 percent of GDP or higher, and a debt-to-GDP ratio above 115 percent. The government has yet to secure passage of its budget for next year.
Analysts said the unrest added to existing doubts about whether Paris can deliver the spending cuts needed to stabilize its finances, especially with presidential elections approaching in 2027 and Marine Le Pen currently forecast to win. Additionally, the euro weakened and French stocks fell, with the sell-off also affecting some other European markets.
On Tuesday, French yields remained elevated near 24-year highs as protest groups announced further demonstrations.
Ratings agency Moody’s is scheduled to review France’s credit rating later in the week.
