French borrowing costs rise sharply as economy shrinks ahead of more protests
TLT•French 10-year government bond yields rose 6 basis points to 4.944% after the economy shrank 0.1% in the third quarter and October inflation exceeded expectations. The spread over German yields widened to 160 basis points.
1. Yields rise after data
French borrowing costs rose on Friday after data showed the economy unexpectedly contracted 0.1% in the third quarter and inflation increased more than expected in October. The 10-year yield rose 6 basis points to 4.944%, while German yields fell 1 basis point and Italian yields rose 2 basis points.
2. Pressure ahead of protests
The spread between French and German 10-year yields widened to 160 basis points. French yields had reached more than 5.14% last week, their highest since 2002, while the spread hit 177 basis points, its highest since the euro zone crisis in 2011. Planned protests this weekend are adding pressure on the government as it seeks to cut spending.
3. Markets weigh rate outlook
Money markets priced in roughly a 90% chance of a European Central Bank rate hike in December after it held rates at 2.5% on Thursday and hinted at an increase next month. U.S. 10-year Treasury yields fell 6 basis points as investors sought safe-haven assets.
