French Bond Yields Surge 16bps to 4.94% as Protests Deepen Fiscal Fears, While BofA Holds October Fed Hike Call

French 10-year government bond yields jumped 16 basis points on Monday to 4.94%, their largest single-day rise since March 2025, as violent nationwide protests over the cost of living compounded investor alarm over France's deteriorating fiscal position. The French-German bond spread blew out to 148 basis points, approaching levels last seen during the eurozone debt crisis, while the euro slipped and the CAC 40 fell. Prime Minister Sebastien Lecornu's minority government faces a critical vote on the 2027 budget, and markets are increasingly doubtful it can deliver a credible path to deficit reduction. Rioting broke out in several cities over the weekend, with luxury boutiques and public buildings looted or set on fire.

Separately, Bank of America reiterated its call for a Federal Reserve rate hike at the October 27-28 FOMC meeting, a view that puts it at odds with broader market pricing. Interest-rate futures assign only roughly a 20% probability to a hike at that meeting, though Reuters had reported near-even odds as recently as October 14 following the September CPI print. BofA cited September inflation data as bolstering the case for tightening, warning that core PCE inflation could reach 3.4% year-over-year by year-end. The Fed raised its policy rate to 3.75%-4.00% in September, and most officials have signaled at least one additional hike this year. Some economists push back, pointing to softer jobs data and fragile consumer sentiment as reasons for the Fed to hold.