Euro zone bond yields climbed on Tuesday, a day after French Prime Minister Sébastien Lecornu’s sudden resignation plunged France into deeper political turmoil unsettling Europe’s second-largest economy and its debt markets.
Lecornu resigned just hours after announcing his cabinet, marking the shortest-lived government in modern French history. President Emmanuel Macron has tasked him with holding emergency talks with political parties to end the ongoing deadlock. The instability has rattled investors already wary of France’s fiscal position.
Why It Matters
France’s 10-year bond yield rose 2.7 basis points to 3.6%, widening its spread over German Bunds to around 83 basis points near its highest since January. The rise signals increased investor concern about France’s political risk and economic direction. Broader European yields also ticked up, mirroring regional unease.
Market Analysts warned that sustained instability could erode investor confidence and raise borrowing costs for France and its EU peers.
Patrick Martin, head of France’s Medef business lobby, called the situation “a political spectacle that saddens us,” urging all parties to show restraint and responsibility.
European investors sought safety in German bonds, while credit strategists said France’s risk premium may continue to widen if no government consensus emerges soon.
What’s Next
Markets are likely to remain volatile as France struggles to form a stable government. Analysts warn prolonged political paralysis could weaken euro zone confidence and push borrowing costs higher. Germany’s continued industrial slowdown, led by falling car exports, may further pressure the bloc’s economic outlook.
With information from Reuters.