French debt risk premiums versus safe-haven German Bunds fell on Friday, after French President Emmanuel Macron said he would appoint a new prime minister in the coming days and his top priority would be getting a 2025 budget adopted by parliament.
The gap between French and German yields DE10FR10=RR – a gauge of the risk premium investors demand to hold French debt – fell to 73.50 basis points, its lowest since Nov. 21. It was last down 3.5 bps at 74.50 bps.
Michel Barnier, a veteran conservative, became the shortest-serving prime minister in modern French history when he resigned on Thursday after parliament voted him out over his fiscal plans, barely three months after he was appointed.
Investors have worried that the most likely outcome of the resulting political crisis was the extension of the 2024 budget to 2025, implying a less restrictive fiscal policy threatening the ability of the government to curb a burgeoning deficit.
Far-right National Rally (RN) leader Marine Le Pen, who voted to oust Barnier, said on Thursday she had no plans to seek the removal of Macron and a budget could be passed within weeks.
"Her comments suggest the political deadlock may not be as stuck as suggested over the past few days," said Michiel Tukker, senior European rate strategist at ING.
"Of course, these are just words, and reaching a credible government budget that satisfies Le Pen's party will prove a challenging task."
According to Tukker, "the spread tightening was felt more broadly throughout rates markets", also affecting Italian BTPs and Spanish Bonos.
JOINT FUNDING PROSPECTS
The yield spread between BTPs and Bunds DE10IT10=RR dropped to 105.40 bps on Friday, its lowest level since October 2021. It was last down 1 bp to 107.60 bps.
"BTPs are taking another major leap as prospects of more joint funding on the European level for defence is boosting the convergence trade," said Michael Leister, strategist at Commerzbank.
Yield spreads have tightened on market hopes for joint issuance from the European Union, which could fund growth and ease the debt burden for over-leveraged economies.
EU countries are discussing a 500 billion euros joint fund for common defence projects and arms procurement, tapping bond markets to boost spending in anticipation of Donald Trump's White House return, the FT reported on Thursday.
Meanwhile, euro area benchmark Bund yields were on track for their first weekly rise in more than a month after reaching 2% on Monday as markets await key U.S. data later in the session.
U.S. payrolls could affect expectations for the Federal Reserve monetary easing path.
Germany's 10-year yield DE10YT=RR rose 0.5 bps to 2.11% and was set to end the week 2 bps higher.
Markets await the European Central Bank policy meeting next week, with investors fully pricing a 25 bps rate cut and no chance of a 50 bps move, while focusing on the rate outlook.
Many think the central bank will have to cut below the neutral rate as inflation risks falling below target.
The neutral rate – which many analysts see at 2% - is the theoretical interest rate that would keep the economy operating at full employment and stable inflation.
China's Foreign Minister Wang Yi recently held a significant phone call with his French counterpart, Jean-Noël Barrot, during which China conveyed strong positions on the Taiwan issue and NATO's role in the Asia-Pacific, alongside broader discussions on trade and bilateral relations
France will contribute an additional €200 million to support reconstruction projects and Ukraine’s integration into the European market, - Prime Minister Denis Shmygal has announced.
French President Emmanuel Macron will meet Italian Prime Minister Giorgia Meloni on Tuesday in a bid to ease tensions over Ukraine, U.S. ties, and EU trade strategies, amid growing disagreements between the two leaders.
UN Headquarters in New York, powerful voices from France’s overseas territories accused Paris of sustaining colonial control under new names, demanding sovereignty, reparations, and justice for people of African descent.
More than 500 people were arrested and two fatalities reported following chaotic celebrations across France after Paris Saint-Germain's historic Champions League victory, according to the interior ministry.
China's Foreign Minister Wang Yi is scheduled to participate in the Ministerial Meeting of Coordinators on the Implementation of the Follow-up Actions of the Forum on China-Africa Cooperation (FOCAC) and the opening ceremony of the Fourth China-Africa Economic and Trade Expo.
The Asian Development Bank will grant nearly $1 million to upgrade Kyrgyzstan’s energy data system, with more large-scale energy investments in the pipeline.
After nearly a decade of talks, Indonesia and the European Union aim to finalize a free trade deal by the end of June.
Iranian Ambassador to Moscow Kazem Jalali and Dmitry Bakanov, CEO of the Russian state space corporation Roscosmos, met on Friday to discuss expanding space cooperation, including the joint production of satellites.
Tensions are rising along the Thailand–Cambodia border as both nations reinforce their military presence following a deadly skirmish and failed de-escalation talks.
A bridge collapse in the Vygonichsky district of Russia’s Bryansk region, near the Ukrainian border, caused a train derailment and a traffic accident early Sunday, killing at least seven people and leaving 30 injured, according to emergency services.
Ukraine’s Security Service (SBU) has confirmed it carried out a third targeted attack against the Crimean Bridge, also known as the Kerch Bridge, early Tuesday morning, marking a new escalation in the ongoing conflict with Russia.
A strong 6.3 magnitude earthquake shook Japan’s Hokkaido prefecture early Monday, causing no reported injuries or damage, and no tsunami warning was issued, officials confirmed.
Peace talks between Russia and Ukraine ended abruptly in Istanbul on Monday, lasting just over an hour amid mounting tensions following a major Ukrainian drone strike on Russian strategic bombers and renewed pressure from the U.S. for a breakthrough.
U.S. President Donald Trump and Chinese President Xi Jinping are expected to speak this week to discuss recent trade tensions, White House press secretary Karoline Leavitt said.
China's Foreign Minister Wang Yi is scheduled to participate in the Ministerial Meeting of Coordinators on the Implementation of the Follow-up Actions of the Forum on China-Africa Cooperation (FOCAC) and the opening ceremony of the Fourth China-Africa Economic and Trade Expo.
The Asian Development Bank will grant nearly $1 million to upgrade Kyrgyzstan’s energy data system, with more large-scale energy investments in the pipeline.
After nearly a decade of talks, Indonesia and the European Union aim to finalize a free trade deal by the end of June.
Iranian Ambassador to Moscow Kazem Jalali and Dmitry Bakanov, CEO of the Russian state space corporation Roscosmos, met on Friday to discuss expanding space cooperation, including the joint production of satellites.
Tensions are rising along the Thailand–Cambodia border as both nations reinforce their military presence following a deadly skirmish and failed de-escalation talks.
China's Foreign Minister Wang Yi is scheduled to participate in the Ministerial Meeting of Coordinators on the Implementation of the Follow-up Actions of the Forum on China-Africa Cooperation (FOCAC) and the opening ceremony of the Fourth China-Africa Economic and Trade Expo.
The Asian Development Bank will grant nearly $1 million to upgrade Kyrgyzstan’s energy data system, with more large-scale energy investments in the pipeline.
After nearly a decade of talks, Indonesia and the European Union aim to finalize a free trade deal by the end of June.
Iranian Ambassador to Moscow Kazem Jalali and Dmitry Bakanov, CEO of the Russian state space corporation Roscosmos, met on Friday to discuss expanding space cooperation, including the joint production of satellites.
Tensions are rising along the Thailand–Cambodia border as both nations reinforce their military presence following a deadly skirmish and failed de-escalation talks.
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