French Unrest Rattles Investors as Bond Yields Climb to Highest Level Since 2002

Fresh unrest across France is making investors nervous about the country’s budget and its long term growth. More demonstrations are planned for Saturday, and President Emmanuel Macron has promised that last weekend’s violence will not happen again. Fund managers are now asking whether a drawn out period of disruption could hurt growth, shake confidence and make it harder for the government to deliver its planned savings. They are also sizing up which sectors and asset classes would suffer most.

France 10 Year Bond Yield Keeps Rising

The yield on France’s benchmark 10 year bond is still moving higher, trading around 5.02% on Friday morning after jumping 11 basis points on Thursday to its highest level since 2002. The gap over German Bunds, the eurozone’s safe benchmark, has stretched to its widest since November 2011. Natixis economist Alain Durré says recent selling is mostly tactical portfolio shifting, while long term buy and hold investors are still staying away.

Moody’s Holds France Rating but Keeps Negative Outlook

Moody’s kept France at Aa3, which it still calls high grade, but left the outlook negative. It blamed the risk that a fragmented political landscape will keep weakening parliament’s ability to function. A return to stable is possible if institutions manage to narrow the deficit.

ING’s Charlotte de Montpellier says the unrest adds uncertainty and makes future reforms harder to deliver, while Ebury’s Matthew Ryan doubts the budget will pass, and warns that it may be so full of concessions that the deficit problem stays unsolved.