Violent weekend protests in France pushed French bond yields higher on Monday and kept the premium investors demand over German debt wide. The euro dipped against the dollar, and French and Italian stocks fell. ECB President Christine Lagarde separately warned that rising global yields are tightening financial conditions in the eurozone.
French short-dated bonds came under pressure on Monday as the two-year note yield rose to 3.603%. The benchmark 10-year yield held largely steady at 4.812%, according to Investing.com. Germany's 10-year yield, by contrast, was virtually unchanged at 3.412%.
Weekend unrest lifts the French risk premium
The move followed one of the nation's worst days of civil unrest in decades over the weekend. Violent nationwide protests over rising living costs, public service cuts and President Emmanuel Macron's fiscal agenda led to mass arrests and widespread destruction, Investing.com reported.
In its live coverage, the Guardian put the French 10-year yield higher, saying it rose 7.5 basis points to 4.855%, and the French and Italian stock markets both fell more than 1%.
Earlier in the day, the euro dipped 0.2% to $1.1218 against the dollar, the Guardian said.
France is grappling with a 5.4% GDP budget deficit, while the cost of insuring its debt through credit default swaps is hovering near multi-year highs. Investing.com said markets therefore continue to demand an elevated risk premium on French bonds relative to German ones.
Lagarde flags tighter financial conditions
Speaking on Saturday, Lagarde said the recent surge in global bond yields is tightening financial conditions across the eurozone and raising borrowing costs for households and businesses. She said this will curb regional growth and ultimately temper inflation, but also make it harder for consumers to absorb recurring energy price shocks driven by ongoing Middle East conflicts.
The ECB has delivered two rate hikes over the past four months. Money markets widely expect another 25-basis-point increase in December, which would bring the benchmark policy rate to 2.75%.
French business leaders call for order
Carrefour CEO Alexandre Bompard said about 1,500 businesses were targeted in the unrest, according to Business Insider. Bompard said on X: "The Republic must protect its shopkeepers!" (Business Insider).
Sources: Investing.com, The Guardian, Business Insider
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