France protests push bond yields higher, euro slips

Social unrest, political instability and mounting national debt weighed on French assets on Monday, with government bonds and Paris-listed stocks under pressure.

The euro was last seen down 0.28% against the U.S. dollar, and was 0.24% lower against the British pound.

The French 10-year bond yield jumped more than 10 basis points, remaining near its highest level in decades despite some recent easing. Higher yields represent higher borrowing costs for the government in the debt market. The country’s 2-year and 30-year yields were up 6 basis points and 8 basis points, respectively.

Stocks are also feeling the heat, with the CAC 40 index down 1.34% in morning deals on Monday. The market has significantly underperformed its European peers in recent years — despite only around 15% of its revenues being generated domestically — with banks under particular pressure.

The French stock market is historically sensitive to any widening in the so-called “OAT-Bund spread”, the extra bond yield France pays over Germany, which has hit the highest level since the European Sovereign Debt Crisis of the early 2010s. French yields now also surpass those of Italy or Greece, implying higher risk.

Widening bond spreads raise concerns about the cost for companies to raise capital and heighten fears of higher taxes and tighter regulation. The French stock market has also struggled due to the dominance of its luxury firms, which are suffering from a downturn in high-end Chinese consumer spending.

Hundreds of thousands of people marched over the weekend in protest over political paralysis, the cost of living and the state of public services, including schools and healthcare.

Mass gatherings in cities from Paris to Lyon and Marseille spilled into dramatic scenes of buildings and cars set on fire, clashes with police and more than 2,000 arrests.

“If you’re an international investor thinking about whether you want to invest in French bonds, it’s not helpful,” Mike Bell, head of market strategy at RBC BlueBay Asset Management, told CNBC’s “Squawk Box Europe” on Monday.

“It looks like either the bond markets riot, or the people riot, or both,” Bell said.

Overseas investors hold a growing share of French debt, rising from around 48% at the start of 2022 to nearly 60% at the start of 2026, potentially meaning higher volatility in the bond market in a risk-off environment.

“What’s needed in France is to get the fiscal position in order, they need to raise the retirement age — you can’t retire at 62 if the average person’s living to 84 — but if this is going on even before they start talking about that, then imagine what would happen on the streets of France if you tried to raise the retirement age to… I mean here in the U.K. it’s 68,” Bell added.

“It doesn’t make the country look that governable against a time when they need to be putting…