French Cost-of-Living Protests Spark Tear Gas Deployments as Credit Risk Concerns Rise

Tens of thousands of people marched in Paris, Marseille, Toulouse, Angers and Lyon on Saturday, angered by rising costs and declining public services, according to Reuters reporting carried by USA Today. Police fired tear gas in parts of Paris, protesters torched Lyon's tourist office, and the Interior Ministry said 272 people had been arrested by mid-afternoon. The protests began at Paris-area high schools over teacher shortages and widened to include Yellow Vests, students, teachers, unions, farmers and retirees. Prime Minister Sebastien Lecornu said more than 900 police officers had been injured in earlier protests.

The market angle is France's financing cost. Reuters said the unrest is pushing government borrowing costs to their highest levels in more than two decades. ZeroHedge reported that France's five-year sovereign credit default swap spread had jumped to about 79 basis points, more than double a recent level near 30 basis points and roughly its highest since 2013, though still well below the 222 basis point peak of the 2011 eurozone crisis. That figure is consistent with earlier readings: Fortune reported the spread at 81 basis points on October 2, when France's 10-year yield hit 4.989%, the highest since 2002.

The fiscal backdrop is what makes street unrest a credit story. ZeroHedge noted that France is targeting a deficit of 5% of economic output in 2027 after missing its target this year, while opposition parties, led by the National Rally, are positioning ahead of the 2027 presidential election. Concessions to protesters would make that target harder to reach.

What to watch: Moody's review of France's Aa3 rating, which carries a negative outlook and is scheduled for October 23, followed by S&P on November 27; the spread between French and German government bond yields; and whether the government offers spending concessions that complicate its budget.