France debt sell-off deepens as violent protests unnerve investors and raise fiscal fears

Borrowing costs climb

France faced renewed selling in bond and stock markets after weekend unrest led to thousands of arrests. Public buildings were burned and hundreds of shops were looted across the country.

The yield on French 10-year government bonds rose by as much as 16 basis points on Monday, reaching 4.94%. Because bond prices and yields move in opposite directions, the rise pushed borrowing costs close to a 24-year high.

Goldman Sachs analysts said European government debt risks had returned to focus. They said France’s fiscal concerns raised questions about a possible repeat of the eurozone debt crisis from 15 years ago.

Political tensions weigh

Tens of thousands of people joined peaceful marches calling for more teachers and repairs to deteriorating schools. Different groups also clashed with police in Paris, Bordeaux, Nice and Marseille.

Neil Wilson, Saxo UK’s investor strategist, said unrest added to worries about France’s political and fiscal difficulties. He also pointed to the difficult fiscal outlook and the approaching 2027 election as added political risk for markets.

France’s government is preparing a budget that would reduce pension spending and funding for government departments, excluding defence. Political pressure could undermine those plans, potentially increasing borrowing and adding to the country’s debt.

Markets reflect broader concerns

The euro fell to a 17-month low against the pound on Monday morning, as sterling rose to €1.188. France’s Cac 40 index dropped 1.4%, compared with a 1.1% decline in the pan-European Stoxx 600.

Other European markets also weakened. Italy’s FTSE Mib fell 1.6%, while Spain’s Ibex dropped 1.9%. Wilson said France was not the only country facing constraints. He said Spain’s budget and fiscal reform challenges were partly offset by stronger economic growth, while Italy’s large debt stock made it especially exposed to persistently high yields.