France's Fiscal Turmoil: Political Challenges and Bond Yield Impact

France's 10-year government bond yield slightly decreased but remains near recent highs due to fiscal concerns. Prime Minister Francois Bayrou faces potential ousting in a confidence vote, risking legislative delays. French yields are strained under a high deficit, as eurozone interest rate expectations adjust amidst economic uncertainties.

France's 10-year government bond yield experienced a minor decline on Thursday, yet it hovers near its highest level since March. This comes amid fiscal uncertainties ahead of a crucial confidence vote involving Prime Minister Francois Bayrou, scheduled for September 8. The bond market is reacting to these developments as Bayrou seeks cross-party support for his deficit reduction strategy.

However, political opposition threatens to topple his administration, potentially triggering fresh legislative elections that could stall deficit-cutting measures. France continues to grapple with longstanding budget deficit issues, as highlighted by SEB's rates strategist Jussi Hiljanen, who emphasized the unsustainability of France's current debt path.

Despite the slight easing in yields, the market remains on edge, with the French-German yield spread nearing its widest point since last year's wobble. The European Central Bank's fading prospects for rate cuts add further pressure to eurozone bond yields, reflecting heightened economic risks and subdued easing expectations.

(With inputs from agencies.)