Growth is hurting bond prices but helping stocks. Fixed-income markets just posted their worst quarter since 2024, yet yields are marching higher again. A long list of reasons includes $100 oil near the top, but the biggest factor is the economy. Investors typically turn to bonds when the growth outlook is grim, but right now it is holding up just fine, as shown by yesterday’s US consumer spending data. That is also a big reason the stock market is holding up well despite rising interest rates. A strong economy means there is unlikely to be much of a drop in yields unless the Fed really cranks up rates to cool inflation. “There’s clearly some nervousness in the market but let’s not forget that in the case of the US, yields are up for a positive reason,” said David Kruk at La Financière de l’Échiquier in Paris.
In a year when stock markets around the world have powered higher, France stands out. The country’s equities are Europe’s most unloved, still not recovering from Emmanuel Macron’s surprise decision to call general elections in June 2024 and the ensuing political crisis. With Parliament fragmented, successive governments have struggled to get the budget deficit under control. Bond investors have taken fright, pushing up yields and demanding a bigger premium over German bunds. The government is trying again today on the budget, unveiling a 2027 plan with €54 billion of spending cuts and tax hikes.
All the drama has weighed on consumer and business confidence, and thus the economy. French stocks now sell at a discount to the broader European market rather than the premium they historically commanded. “A lot of investors dismiss it, but political risk is a thing,” said Kevin Thozet of Carmignac in Paris.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing