Political Tensions Shake French Bond Market: No-Confidence Threat Looms

French government debt risk premium rose as far-right and leftist parties backed a no-confidence vote against Prime Minister Michel Barnier. The bond yield gap between France and Germany widened, amid rising uncertainty. Barnier's budget struggles highlight France's political instability, impacting eurozone financial dynamics significantly.

The risk premium for French government bonds rose significantly on Monday, sparked by far-right and left-wing parties supporting a no-confidence motion against Prime Minister Michel Barnier. This political turmoil places Barnier's government on shaky ground, intensifying the gap between French and German 10-year bond yields, which increased by 7 basis points to 87.

As tensions mounted, France's 10-year bond yield surged to 2.921%, surpassing Greece's for the first time, amidst heated budget disputes in parliament. Barnier's push to pass the 2025 budget to tackle France's public deficit faces fierce opposition, reflecting severe governmental fractures.

A potential government collapse could lead to prolonged policy paralysis, complicating President Emmanuel Macron's efforts to form a stable government. Meanwhile, Germany's bond yields fell, benefiting as a safe haven amid declining eurozone manufacturing data and market skittishness.

(With inputs from agencies.)