French Political Crisis Sparks Bond Contagion Fears — SkimNews
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- France is politically paralyzed, with its National Assembly split into three hostile blocs—the far-right National Rally, the far-left France Unbowed, and President Macron's centrists—making it impossible to pass a budget to tackle the deficit.
- French government bonds are being dumped by investors, driving the yield on the benchmark 10-year bond above 5% for the first time in decades amid fears the country is headed for a fiscal cliff.
- The bond-market crisis is spreading beyond France as investors sell holdings in other markets to chase higher returns in French debt, a dynamic accelerated by hedge funds dominating the market.
- The United States is identified as the major risk for contagion, with a $40-trillion national debt and a projected 10% fiscal deficit, yet neither political party has a serious deficit-reduction plan.
- Canada and Germany are seen as relatively safe among G7 economies due to lower debt burdens, while Britain's upcoming budget will be closely watched as a potential next flashpoint.
Why it matters: Investors are fleeing French debt because its political system cannot address a runaway deficit, creating a high-yield vortex that pulls capital from other risky sovereign borrowers. This directly raises borrowing costs for the U.S. and other indebted nations, threatening a broader financial crisis that would impact all their trading partners, including Canada.
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