In a symbolic alignment, the yield on French 10-year government bonds on the secondary debt market, where investors buy and sell securities after they have been issued, aligned with that of Italian bonds with the same maturity on Tuesday, September 9, at 3.47%. At the same time, the yield spread between French and German 10-year bonds rose to more than 80 basis points, its highest level since January.
Investors are reacting to the expected resignation of Prime Minister François Bayrou and questions about his successor and the composition of the next government.
"Markets are telling us both that French political uncertainty has been priced in and is likely to persist until 2027, but also that the likelihood of a unified political front is very low, so the deficit issue remains unresolved and uncertainties risk weighing on growth," said Kevin Thozet, a member of the investment committee at the French asset management firm Carmignac.
The next key date is set for September 12, when the rating agency Fitch will announce its rating decision, which could involve downgrading France's sovereign debt. But such a move would be largely symbolic, as the assessments of Fitch and its competitors, S&P and Moody's, are generally seen by investors as after-the-fact evaluations.
