French riots drive bond yields and bank losses
Violent protests in France have triggered a sell-off in European markets, widening the bond spread over Germany. Major banks holding French debt have fallen, and a credit rating downgrade is considered likely.
Violent protests in France resulted in the looting of at least 3,000 stores, including Burberry, LVMH, and Kering. Interior Minister Laurent Nunez admitted authorities lost control and offered his resignation, which President Emmanuel Macron rejected. The unrest triggered a sell-off in European markets: the DAX fell 1.2% to 25,320 points, with Rheinmetall dropping over 3%. The CAC40 lost 1.4%. French 10-year bond yields rose to 4.9%, creating a 1.46 percentage point spread over German bonds, a gap last seen during the Euro debt crisis. France now appears riskier than Italy. Major banks holding French debt, including BNP Paribas, Société Générale, and Crédit Agricole, fell up to 3.6%, while Deutsche Bank and Commerzbank also lost over 3%. France faces state debt of nearly 120% of GDP and a deficit of over 5%. Gordon Shannon of 24 Asset Management noted no majority exists for solid public finances. Moody's reviews France's rating on Friday, with a downgrade considered likely. Citigroup expects France to keep markets on edge until summer. Germany's debt ratio is 66% with a deficit rising to 4%, prompting Commerzbank to warn of increasing similarity to France.