France's bond and stock markets were hit by a fresh wave of selling on Monday after violent weekend protests left public buildings burned, shops looted and almost 2,400 people arrested, sending the government's borrowing costs higher and adding to political risk before the 2027 election.
France's bond and stock markets were hit by a fresh wave of selling on Monday after a weekend of violent protests in which public buildings were burned, hundreds of shops were looted and almost 2,400 people were arrested, according to the interior ministry.
The yield on France's 10-year government bond rose seven basis points to 4.849%, widening its gap with German borrowing costs, a standard measure of the risk premium investors attach to French debt. The two-year yield rose 2.5 basis points to 3.571%, and the 30-year yield, a benchmark for long-term borrowing costs, gained three basis points to 5.397%. The euro slipped 0.4% against the US dollar to $1.1197, while the Cac 40 index of Paris-listed companies fell 1% at the start of trading, against a 0.4% drop on the pan-European Stoxx Europe 600.
The violence followed weeks of peaceful demonstrations over conditions in schools and the cost of living. Tens of thousands of people have marched to demand more teachers and repairs to decrepit schools, while different groups have clashed with police in Paris, Bordeaux, Nice and Marseille, with police deploying teargas.
President Emmanuel Macron condemned the "unbridled violence" in a televised address on Sunday night. "Looking at these images, we all asked ourselves: what is going through their minds? How can French people do this to France?" he said.
Jim Reid of Deutsche Bank said the protests "won't make it easy for the international community to be totally comfortable buying OATs" (French government bonds). He added: "With France already facing a difficult fiscal backdrop and the 2027 election approaching, the weekend adds another layer of political risk for markets."
The sell-off adds strain to France's public finances as the government prepares a budget for next year aimed at reining in its deficit. France's debt-to-GDP stood at 115.6% in 2025, with a budget deficit of 5.1%, compared with 94.3% and 4.3% for the UK respectively. The budget would cut spending on pensions and government departments, excluding defence, but there are growing fears that political pressure could derail the plans and push borrowing costs higher.
Analysis
Why This Matters
- Rising French borrowing costs will make the government's planned deficit reduction more expensive at exactly the moment it is trying to pass an austerity budget.
- The unrest adds a new layer of political risk before the 2027 election, and the gap between French and German 10-year yields is the measure investors will watch for broader confidence in the eurozone.
- For readers outside France, the sell-off is a signal about the health of one of Europe's largest economies and the stability of its currency.
Background
France entered the current turmoil with its public finances already under scrutiny. The interior ministry reported that almost 2,400 people had been arrested over the weekend, with police deploying teargas in several cities. Weeks of peaceful demonstrations over school funding and the cost of living escalated into clashes in Paris, Bordeaux, Nice and Marseille. The government now needs to pass a budget for next year that would cut pensions spending and departmental funding, excluding defence, to rein in a deficit that reached 5.1% of GDP in 2025, against a debt-to-GDP ratio of 115.6%.
Key Perspectives
Investors: Jim Reid of Deutsche Bank said the protests "won't make it easy for the international community to be totally comfortable buying OATs," and described the weekend as another layer of political risk for markets on top of a difficult fiscal backdrop and the approaching 2027 election.
The French government: President Emmanuel Macron condemned the "unbridled violence" and asked how French people could do this to France. His government is preparing a budget that would cut pensions spending and departmental funding, excluding defence, to rein in the deficit.
Demonstrators and protesters: Tens of thousands of people have taken part in peaceful marches demanding more teachers, repairs to deteriorating schools and action on the cost of living. The source identifies "different groups" as having clashed with police, but does not say who carried out the violence or what demands those groups are making.
What to Watch
- The French-German 10-year yield spread: if it keeps widening, the market is pricing in persistent political risk.
- Whether the government's budget survives political pressure, since derailment could push borrowing costs and the debt pile higher.
- The scale of further protests, which markets are likely to treat as an additional layer of risk ahead of the 2027 election.
