Global Market: Eurozone bond yields rise as French unrest fuels fiscal concerns

Japan’s central bank signals further policy tightening as inflation approaches its 2% target.

According to Reuters, French 10-year government bond yields have climbed more than 16 basis points so far this week, significantly outpacing the average increase of 5.4 basis points across the world's largest economies, based on LSEG data.

French 10-year OAT yields were last up 3 basis points on the day at 4.948%, approaching the 5% mark for the first time since mid-2002. The increase reflects growing investor concerns about France's fiscal outlook and the economic consequences of continued social unrest.

The yield premium on French bonds over their German counterparts has also moved toward the 15-year high of nearly 160 basis points recorded in early October. The spread, which measures the additional return investors demand to hold French rather than German government debt, stood at 150 basis points, the widest among euro zone economies.

Although the violence had eased by Tuesday, further protests are planned for Saturday, keeping uncertainty elevated. Businesses are also facing financial repercussions from the unrest. Carrefour, Europe's largest food retailer, cut its operating profit margin growth targets on Tuesday, citing the riots' impact.

Deutsche Bank strategist Jim Reid said concerns about France remained unresolved despite a temporary calming of domestic unrest, Reuters reported.

Investors are also monitoring developments in Italy, where protests over the rising cost of living took place in Milan over the weekend. Prime Minister Giorgia Meloni approved tougher anti-rioting measures on Tuesday amid concerns about further social unrest.

However, Italian government bonds have come under less pressure than French debt this week. Italian 10-year yields have risen by 8 basis points so far, around half the increase recorded in France. The spread between Italian 10-year BTP yields and German Bund yields narrowed slightly on Wednesday to 113 basis points.

German government bond yields also rose, reflecting broader weakness across the euro zone debt market. The benchmark 10-year German Bund yield rose 3 basis points to 3.426%, putting it on course for a weekly increase of around 1.5 basis points, Reuters reported.

German two-year bond yields also advanced 3 basis points to 3.083%, as investors assessed the outlook for inflation, energy prices and government borrowing costs across the region.

The renewed rise in Frenchyields highlights the growing divergence in borrowing costs within the euro zone, with political instability and fiscal uncertainty adding to pressure on government debt markets. Persistent strength in oil prices could further complicate the outlook by adding to inflation risks and influencing monetary policy expectations, Reuters reported.