French 10-year yield tops 5%, a 24-year high, as unrest spreads stress to Italy, Belgium
French 10-year government bond yields broke above 5% on Thursday, their highest in 24 years, with the gap over German Bunds widening to nearly 180 basis points as fiscal strain and political deadlock rattled investors.
That spread over Bunds is the widest since the 2011 euro zone debt crisis. A heavy budget deficit, a stalemate in Paris and growing street protests have fed doubts about France’s capacity to rein in public spending.
The strain is not confined to France. Italian 10-year yields have added 14 basis points this week to 4.616%, nearing three-year highs touched in early October. Belgium’s 10-year premium over German debt has widened to 109 basis points, a 14-year high, with yields up as much as 12 basis points on the day to 4.54%, the highest level since early 2012. The cost of insuring Belgian debt against default has climbed to almost 39 basis points, its highest since April 2020, and has more than doubled over the past month.
Mike Bell, head of market strategy at BlueBay Asset Management, said persistently high borrowing costs could gradually push up refinancing bills and squeeze government budgets further. He does not expect French spreads to reach the extremes of the earlier debt crisis but said the Bund premium could exceed 200 basis points if political and fiscal uncertainty deepens.
Italy faces its own test from an election due next year that could complicate efforts to cut its large debt pile, after Italian yields had fallen below French levels in September of last year. Italian Prime Minister Giorgia Meloni has tightened anti-riot rules following unrest in northern cities including Milan.
Marc Ostwald, global economist at ASM Investor Services, said fuel, housing and broader living costs remain key sources of public discontent even as many developed economies have otherwise held up.
Higher sovereign yields across France, Italy and Belgium raise government financing costs and can weigh on eurozone bank balance sheets and the euro, while renewed debt-sustainability worries tend to push investors toward safer assets such as German Bunds and US Treasuries.
Source: Economic Times Markets