New fall in French bonds after the motion of impeachment to the government – Spreads widen

French spreads from German are growing and its shares were under earlier sales pressure after Marin Lepin’s party announced that it would support a vote of mistrust against Prime Minister Michel Barnier’s government. The spread between the 10-year French and German bonds was widened by eight basis points within the day at 89 basis points, approaching the highest level since 2012 and on the path to greater enlargement since June. CAC index 40 was negotiating 0.4% lower although towards the end of the meeting it managed to find itself marginally on positive ground, and the euro is also falling over 1%. Barnier used a constitutional tool to ratify parts of his unpopular budget bill without parliamentary vote, after negotiating days. While offering a last-hour compromise in Lepin, committing not to cut back on drug refunds, this was not enough to gain support from the National Alert. “The key scenario now is to drop the Barnier government,” Benoit Gerard, a strategic interest analyst in Natixis, told Bloomberg, adding that the new balance level for the spread is about 100 basis points. “The lack of governmentability is now clearer than before”. The political controversy threatens to derail the government’s efforts to reduce the growing deficit planned to expand to 6.1% of GDP this year and has seriously burdened French titles. French bonds have yielded in relation to the euro area’s counterparts since President Emmanuel Macron shocked the markets by announcing early elections in June, with the risk premium for the 10-year bonds now negotiating near levels last observed during the eurozone debt crisis. The odds were over those Greek debt last week. The next milestone would be to close the “slip” with Italy, the traditional “bad child” of the region for fiscal waste. “Whether the government falls or not, the issues of France are bigger than this,” said Robert Disner, Neuberger Berman’s senior portfolio manager in an interview with Bloomberg television. “Travel direction feels we will move more widely on French spreads”. Meanwhile, signs are increasing that the political crisis is burdening the prospects of the common currency. The euro is falling up to 1.1% to $1,0462.