French Political Shake-Up Calms Investor Nerves

Following the expected collapse of the French government, the risk premium on French debt compared to German Bunds decreased. The no-confidence motion united far-right and left-wing lawmakers, causing market participants to anticipate a different economic scenario for France. Analysts expect slow economic growth and credit issues.

The political upheaval in France, marked by the widely anticipated fall of Prime Minister Michel Barnier's government, has led to a decrease in the risk premium on French debt. The no-confidence vote received support from both far-right and left-wing factions, creating a distinctive political landscape.

Investors witnessed the spread between French and German yields tighten by 3 basis points to 80.90 bps, after hitting a 12-year high earlier in the week. Analysts foresee a slower economic trajectory, with potential challenges to France's sovereign creditworthiness.

The eurozone's borrowing landscape was further complicated by the U.S. economic data, with the Federal Reserve signaling a more cautious approach to interest rate cuts. Meanwhile, Italian bonds showed resilience, outperforming their euro-area counterparts.

(With inputs from agencies.)