France Squeezed by Student Unrest and Surging Bond Yields — SkimNews
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- France's student protests paused Wednesday after three weeks of violent clashes with police, mass school closures, and thousands of arrests, with demonstrations expected to resume Thursday and PM Lecornu set to address the nation Wednesday evening.
- Prime Minister Sébastien Lecornu accused La France Insoumise of hijacking the movement while pledging to open dialogue on teacher shortages, derelict school buildings, and timetables, but insisted conversations happen "without giving in to politicized manipulations."
- France's 10-year OAT yield surged 16 basis points on Wednesday and has risen more than 100 basis points year-to-date to multi-decade highs, with Pimco CEO Emmanuel Roman telling Le Monde the situation is "critical" and that France needs reforms like Italy implemented when "its back was against the wall."
- Bank of France Governor Emmanuel Moulin dismissed the notion of ECB intervention, saying conditions "are not met today" because the central bank's mandate is fighting inflation, not resolving individual member states' fiscal problems.
- The French government faces budget negotiations in the coming weeks needing a divided National Assembly — containing the far-right National Rally, the left-wing New Popular Front, and Lecornu's center-right bloc — to agree on fiscal adjustments worth tens of billions of euros against a 5.1%-of-GDP deficit.
- Principal Asset Management's Anthony Brinkman said the OAT sell-off "does not look exhausted" and warned that Q4 credit reviews from Moody's and S&P could trigger rating downgrades that "amplify selling pressure."
- Marine Le Pen, the frontrunner for the spring presidential election, pledged to reduce France's deficit to 3% within 18 months of taking office, though critics have questioned the feasibility of her plan.
Why it matters: Pimco's CEO publicly compared France's situation to pre-reform Italy, and with rating agencies Moody's and S&P due to review France in Q4, the bond market is pricing in a material risk that the minority government cannot deliver fiscal adjustments worth tens of billions. Two prior administrations have already fallen to no-confidence votes, and with Marine Le Pen leading polls ahead of the spring presidential election, the political window for credible budget action is closing while yields are pushing multi-decade highs.
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