Europe’s Indebted Nations Are Starting to Blink at Market Wrath

Live updates

1. 3h ago

   European Bond Selloff Deepens as France Faces Rising Yields

   European bond markets are reacting to mounting government debt burdens as investors demand higher borrowing costs. French 10-year bond yields reached their highest level since 2002, pushing Paris borrowing costs above those of Rome or Athens. Investors are responding to France's debt burden alongside a parliament with no clear majority and no agreement on how to lower deficits. Political figures and central bankers warn that European debt-crisis risks have risen sharply, serving as a clear warning sign about governments managing their debt.

   Why it matters

   The recent bond selloff indicates that bond markets are beginning to enforce fiscal discipline on governments, which could reduce the need for benchmark interest rate hikes by global central banks. Protesters demanding spending clash with market requirements for fiscal restraint across indebted European nations. Analysts note that default risks and negative feedback loops are now haunting French bonds as the political class begins bending to market pressure.

   What is confirmed

   • French 10-year bond yields hit their highest level since 2002.
   • Investors now demand more to lend to Paris than to Rome or Athens.
   • European debt-crisis risks have risen sharply, according to a German central banker.
   • Europe's political class is showing the first signs of bending to the will of an unforgiving bond market.

   Still unconfirmed

   • Nobel winner Krugman stated that France may have become too big to save and poses a risk of an explosive European debt crisis.
   • A strategist from RBC BlueBay indicates that Le Pen lifting the retirement age is key to French bond yields.
   • Default may be the tail risk haunting French bonds while France's economy is trapped in a negative feedback loop.

   What to watch next

   • Developments in French parliamentary agreements regarding deficit reduction
   • Decisions by political leaders regarding retirement age policies
   • Further moves in 10-year French bond yields relative to Rome and Athens
   Sources used for this update (17)

   1. WSJ — France’s Economy Is Trapped in a Negative Feedback Loop
   2. WSJ — Default May Be the Tail Risk Haunting French Bonds
   3. CNBC — Nobel winner Krugman says France may have become 'too big to save'
   4. The Washington Post — Opinion | A French debt solution: Burn it. Freeze it. Anything but address it.
   5. Bloomberg.com — Krugman Says France Poses Risk of Explosive European Debt Crisis
   6. Reuters — Le Pen lifting retirement age is key to French bond yields, RBC BlueBay strategist says
   7. The Guardian — France’s dilemma: protesters demand spending as markets require fiscal restraint
   8. Bloomberg.com — Europe’s Indebted Nations Are Starting to Blink at Market Wrath
   9. finance.yahoo.com — Europe’s Indebted Nations Are Starting to Blink at Market Wrath
   10. Yahoo Finance — European Debt-Crisis Risks Have Risen Sharply, Bundesbanker Says
   11. Yahoo Finance — Investors Now Demand More to Lend to Paris Than to Rome or Athens as French 10-Year Bond Yields Hit Highest Level Since 2002
   12. www.atlanticcouncil.org — How the world fell out of love with French debt - Atlantic ...
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