Rising Optimism in French Budget Amidst Political Turmoil

Investor confidence in French debt improves as optimism grows around France passing a budget, despite political instability. Markets were reassured by Marine Le Pen's comments and anticipated Prime Minister changes. Meanwhile, Germany's bond yields rise amid discussions on a European defense fund, affecting the market dynamics in the eurozone.

The political landscape in France is undergoing significant changes as the nation struggles to stabilize amidst a deepening political crisis. Investors were relieved on Thursday when the risk premium required to hold French debt compared to German bunds decreased, signaling optimism around the potential for France to pass a budget.

Far-right and left-wing lawmakers in the country joined forces against Prime Minister Michel Barnier, leading to his resignation and intensifying the crisis in France's government. Despite this turmoil, comments from Marine Le Pen brought some market reassurance, as she indicated no intention to remove President Emmanuel Macron and expressed confidence that a budget could be achieved soon.

As France deals with these challenges, Germany is seeing rising borrowing costs, influenced by reports of a proposed 500 billion euro joint defense fund involving European Union countries. Analysts caution the need for more supply of bonds, which might impact German bunds due to their greater credit quality.

(With inputs from agencies.)