CAC: French Stocks Face Exodus as Budget Woes Increase – Government Bond’s Risk Premium
The finance minister hinted at making concessions to get the budget through and avoid opposition parties bringing down the government.
- S&P may publish outlook update for France Friday
- Government bond risk premium highest on record
- Popular sentiment seeks new elections
The CAC is trading higher this morning after it lost over 2.5% at one point from Monday’s open after weak data yesterday.
The political woes for the French government continue to get entrenched. The easing words from the finance minister willing to concede some ground on the budget do not seem to dissipate those concerns.
The French minority government has been trying to pass the 2025 budget since the prime minister was appointed in September.
The budget proposal includes tax hikes and spending cuts to the tune of €60 billion ($62.8 billion). The bill has already been rejected by the national assembly and has caused considerable scorn by the general public.
Survey Shows Desire for New Elections
The oppositions parties each have their own demands, some that overlap between the parties, but others don’t. A recent poll shows that 50% of the people surveyed want the government to fall.
Various sources quoted by Reuters say that the government could fall before Christmas and as early as next week. The far-right National Rally party could force a vote of no confidence that the government would most probably lose.
CAC Live Chart
Government Bond Blues
The benchmark French government bond yield has matched that of Greek government bond yields. The milestone is a historical first for French bonds, highlighting the view of extreme country risk.
10-year French bond yields hit 3.03% in line with Greek bonds. The yield represents a spread of 88 basis points over German government bonds. The spread between the two bonds is the risk premium investors want to receive to hold French bonds.
The yield is the highest since 2012 during the Eurozone debt crisis. The situation looks dire and could worsen the outlook for stocks if the risk premium rises. Many asset managers have strict rules on country risk and would be forced to exit French stocks if the spread continues to rise.
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