France's OAT yield drops amid ECB expectations and political turmoil

The yield on France’s 10-year OAT stood at around 2.88%, close to two-month lows, as traders prepare for the European Central Bank’s (ECB) upcoming decision while monitoring the political situation in France.

France's OAT yield drops amid ECB expectations and political turmoil

The ECB is widely expected to reduce the deposit rate by 25 basis points for the fourth time. Market participants anticipate a faster pace of policy easing, expecting a quarter-point rate cut at each meeting through June. Meanwhile, President Macron is discussing with political leaders the selection of a new prime minister in France. This follows the passing of a no-confidence motion against Prime Minister Barnier in parliament last week, backed by both far-right and left-wing lawmakers, which resulted in the government’s collapse.

France's government falls over budget divisions as risk premium eases

The government’s downfall was driven mainly by deep divisions over the 2025 budget, which includes €60 billion in proposed tax hikes and spending cuts aimed at reducing the deficit to 5%. The French risk premium over German Bunds narrowed to 76 basis points after spiking to a 2012 high of 90 basis points in recent weeks.