French Bond Futures Hold Gains After Barnier’s Government Falls
French bond futures held onto earlier gains after far-right leader Marine Le Pen joined a left-wing coalition to topple the government, setting the stage for further political wrangling that has weighed on the nation’s assets for months.
(Bloomberg) -- French bond futures held onto earlier gains after far-right leader Marine Le Pen joined a left-wing coalition to topple the government, setting the stage for further political wrangling that has weighed on the nation’s assets for months.
Contracts on 10-year securities remained 0.2% higher after a majority of lawmakers in the National Assembly supported a no-confidence vote against Prime Minister Michel Barnier’s administration that earlier this week forced through an unpopular budget bill.
The outcome, which came after the close of regular trading, was expected by investors as both Le Pen’s National Rally and the leftist Socialists said they would vote to bring down the government.
It’s the latest installment in months of political drama that has roiled French bonds. President Emmanuel Macron in June called snap legislative elections that resulted in a fractious coalition which remains divided over the government’s fiscal plans. Since then, French borrowing costs relative to Germany’s have almost doubled to 90 basis points, levels last seen during the euro-area sovereign debt crisis.
Some investors had forecast that if the government falls, the extra yield on 10-year French bonds will climb to 100 basis points over German securities.
“At this juncture we are pessimistic on the outlook for the French deficit, and on balance expect spreads to widen by a further 10-20 basis points into year end,” said Alex Everett, an investment manager at abrdn, earlier Wednesday.
While the development was hardly a surprise for the market, it takes France into unchartered territory and hinders efforts to trim the nation’s ballooning deficit. The budget gap is forecast to widen to more than 6% of gross domestic product this year, double the limit under the European Union’s rules.
The bill initially presented by Barnier’s government contained €60 billion ($63 billion) of tax increases and spending cuts that aimed for a sharp adjustment in the deficit to 5% of economic output in 2025.
Barnier warned last week of a “storm” in financial markets if he is dismissed from power. Despite making concessions on the budget, the National Rally and the leftist coalition called for the votes of no confidence.
Macron can now appoint a new prime minister, although there is no constitutional deadline for his decision. He has said previously he wouldn’t resign until his full term had ended. The next presidential election is set for 2027 and Le Pen remains the frontrunner, according to polls.
More stories like this are available on bloomberg.com
©2024 Bloomberg L.P.
Catch all the Business News , Corporate news , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
MoreLess
First Published:5 Dec 2024, 02:19 AM IST
- Top Gainers
- Top Losers
- 52 Week High