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As a selloff in French government bonds deepens, the region's debt-laden economies risk a surge in borrowing costs while also grappling with increasing social unrest.
Euro zone consumer confidence falls to -17.9 in October
France faces a severe fiscal, debt, and political crisis, with its 10Y bond yield surging to ~5%, the highest since 2002. The deficit/GDP ratio remains far above the EU's 3% threshold, with public debt projected to reach 118% of GDP by 2026.
ECB says AI, greener economy help euro zone weather energy shock
I expect something similar to inflation stagflation in Europe to pressure the Vanguard FTSE Europe ETF (VGK) below current levels. VGK's risk premium and earnings yield are in my opinion insufficient to compensate for rising inflation, weak growth, and sovereign yield spreads (although not nonexistent). My bottom target for VGK is a further 7–14% decline, reflecting fair compensation for current macro risks.
IMF expects at least one more 25 bps ECB rate hike in 2026
What's happening in France is staying in France bond-wise for now. That's a good thing.
Wages aren't rising at a rate that would trigger inflation alarms, European Central Bank Chief Economist Philip Lane said Thursday.