French Government-Bond Yields Rise on Protests, Budget Concerns; Treasury Yields Fall — Update

By Emese Bartha

Yields on French government bonds rose on Monday on concerns about violent street demonstrations in France in the wake of the government's planned budget-deficit cut, while U.S. Treasury yields fell.

The protests heightened concerns about political uncertainty ahead of next year's French presidential elections, on top of worries about debt. French bonds considerably underperformed U.S. and European peers.

Treasury yields fell as oil prices declined, allowing long-dated yields to remain comfortably below recent multidecade highs. The 10-year Treasury yield fell 2.1 basis points to 5.076%, according to Tradeweb.

The 10-year French OAT yield increased 7.8 basis points to 4.866%, while 10-year German Bund yields increased 1 basis point to 3.420%. The spread between the two reached a two-week high of 145 basis points, LSEG data showed.

Violence in France escalated during a nationwide protest on Saturday, then resumed Sunday evening with riots across Paris.

"What started as student/education unease about a month ago morphed into broad protest against the rising cost of living, declining public services and overall frustration against the Macron administration," KBC Bank analysts said in a note.

French politicians have to bridge the domestic riots with international bond-market pressure while trying to navigate next year's budget through parliament, they said.

With French public debt above 119% of gross domestic product and the deficit expected to remain substantially above the European Union's 3% threshold, investors are increasingly questioning the government's ability to stabilize public finances, Claudio Wewel, FX strategist at J. Safra Sarasin Sustainable Asset Management, said in a note.

Meanwhile, Treasury yields fell as the Federal Reserve looks increasingly unlikely to raise interest rates again as soon as this month, despite higher-than-expected U.S. consumer-price inflation data for September. Investors are also shifting their attention increasingly to the economic impact of high borrowing costs and the sustainability of debt-funded AI investments.

The fall in longer-dated yields might also reflect market expectations that the Treasury could reduce issuance of long-dated Treasurys at the next quarterly refunding announcement early next month, Danske Bank's Jens Naervig Pedersen said in a note.

Still, concerns over inflation aren't over.

RBC BlueBay Asset Management expects U.S. inflation to peak at 4% early in the new year, fixed income CIO Mark Dowding said in a note.

Barclays also upgraded its forecast for U.S. interest rates after recent strong U.S. consumer and producer-price inflation figures. It now expects the Fed to hike by a quarter point in December and January, having previously expected just one increase in December.

Money markets are pricing a high 85% probability of unchanged interest rates at the Fed's Oct. 28 interest-rate decision, according to LSEG. Around three rate increases are priced in over the coming 12 months.

Write to Emese Bartha at emese.bartha@wsj.com

(END) Dow Jones Newswires

October 19, 2026 05:14 ET (09:14 GMT)