Global long bond alarm sounded! Political storm hits Paris: French stocks and bonds both suffer, stock index plummets by 2%

A confidence vote initiated by the French Prime Minister is triggering a "double kill" in the country's assets, becoming another reflection of the global long-term bond storm.

According to the latest media reports, French Prime Minister François Bérou announced on Monday that a confidence vote for his government will be held on September 8. Against the backdrop of many economies worldwide still facing growth pressures and the public expecting more fiscal support, Bérou's move aims to forcefully pave the way for his controversial fiscal tightening plan totaling €44 billion.

However, this "counter-trend" political gamble immediately raised concerns in the market about the potential collapse of the government. Following the news, market risk aversion quickly intensified, leading to a second consecutive day of selling of French assets.

As a key risk indicator, the yield on French 10-year government bonds surged by 9 basis points to 3.51%, widening the spread with German government bonds of the same maturity to 78 basis points, the highest level since April.

At the same time, the French CAC 40 index plummeted by 2%, continuing its 1.6% decline from Monday. The French stock market led European stocks lower, with the Euro Stoxx 50 index down 1.2%, the German DAX index down 0.85%, and the UK FTSE 100 index down 0.8%.

In fact, from Paris to Tokyo to Washington, the continuously expanding government debt and increasingly heavy debt servicing costs are posing a severe challenge to global financial stability. The political turmoil in France is yet another concentrated manifestation of the vulnerability of global markets under this new paradigm of high debt and high interest rates.

Political Stalemate Triggers Risk of French Government Collapse

The root of this market turmoil lies in France's profound political stalemate. According to Xinhua, Prime Minister Bérou stated at a press conference on the 25th that to overcome the difficulties faced by the government, he requested the National Assembly to hold a confidence vote on his leadership on September 8.

The motion aims to forcefully pave the way for a fiscal plan that includes €44 billion in spending cuts and tax increases. Bérou reiterated that this move is intended to prevent further exacerbation of public debt risks.

However, the leaders of major opposition parties from both the French left and far-right have clearly stated they will vote against it. National Rally leader Marine Le Pen stated on social media: "We will clearly vote against François Bérou's confidence motion."

"The opposition seems inclined to oppose the motion. Unless they change their stance, the government will collapse," analyzed Antonio Barroso and Jean Dalbard from Bloomberg Economics If the majority of lawmakers vote against it, the Bero government will be forced to resign, repeating the fate of last year's former Prime Minister Barnier's government. This political instability is rapidly translating into economic liabilities, exacerbating France's already fragile fiscal situation. Charlotte de Montpellier, a senior economist at ING Groep NV, wrote in a research report: "France's political instability is becoming a drag on its economy."

In fact, over the past year, concerns about France's political and fiscal situation have continuously pressured the country's assets due to a hung parliament and stalled fiscal reforms. Data shows that the yield on France's 10-year government bonds is currently one of the highest in the Eurozone, even surpassing countries like Greece and Portugal, which were once at the core of the euro debt crisis.

However, the sharp sell-off of French bonds has also triggered a starkly different reaction in the market. Institutions such as Japan's Nissay Asset Management and Fivestar Asset Management have stated that the widening France-Germany spread and yields far exceeding those in Japan provide them with buying opportunities. However, institutions like Mitsubishi UFJ Asset Management have indicated that political uncertainty will prompt them to reduce their holdings of French government bonds.

A Microcosm of the Global Long Bond Storm

France's predicament is not an isolated case but a microcosm of a "slow-motion crisis" brewing in the global long bond market. While the volatility of tech stocks dominates the headlines, the pressures facing the global government bond market have largely been overlooked.

Last week, the yields on 30-year government bonds in Germany and France rose to their highest levels since 2011. Meanwhile, the yield on Japan's ultra-long government bonds has surged to decades-high levels, as concerns over fiscal expansion and weakening demand from overseas investors are squeezing its bond market.

Last Thursday, the latest market turmoil pushed the yield on Japan's 20-year government bonds to 2.655%, the highest level since 1999. At the same time, the latest market data shows that following the trend of U.S. government bonds, Japan's 10-year government bond futures have fallen to their lowest level since 2009, once dropping 14 points to 137.22.

The logic behind the sell-off is quite clear: government debt levels are rising, necessitating the issuance of more bonds for financing. At the same time, countries like Japan are facing pressure to raise interest rates, while the U.S. and the U.K. are battling persistent inflation. The global interest rate and debt environment is undergoing dramatic changes.

Albert Edwards, a strategist at Société Générale, warned that investors have been distracted by hot topics like artificial intelligence, overlooking the core clue of rising global long bond yields. He believes this has sharply diminished the relative attractiveness of stocks, marking the end of the "There Is No Alternative" (TINA) era.

After years of fiscal expansion and pandemic-related economic stimulus, government debt in major global economies has surged to historic highs. Now, as central banks tighten monetary policy to combat inflation, a high-interest-rate era has arrived, making the repayment costs of massive debts increasingly burdensome Against this backdrop, the global market's scrutiny of fiscal discipline and political stability has become exceptionally strict, and France's political gamble has precisely touched this most sensitive nerve