Why France is a warning sign for the markets

The good news about the epic shifts in global bond markets is that they mostly reflect economic fundamentals, not the kinds of panicky swings seen in a crisis.

The bad news is that there's a risk the disruptions metastasize into a broader crisis in an era of fractured politics across major democracies.

The big picture: Turmoil in the streets this week in France is the latest sign of hazards that await elected leaders who try to address yawning fiscal deficits head-on.

They are squeezed between voters who want to maintain public benefit levels and tax levels and a bond market that is resetting long-term interest rates higher — meaning that carrying on with wide deficits will come at a greater and greater cost to service debt.

That's why even what has been a relatively orderly repricing so far carries risks that are bigger than just high mortgage or corporate borrowing rates.

Driving the news: The relentless upward march of bond yields continued Wednesday morning.

The French 10-year yield soared 0.18 percentage point, to 4.93%.

French yields are also surging relative to other countries that use the euro, especially Germany — the kind of fragmentation seen in the eurozone debt crisis of the early 2010s that originated in Greece .

But France is not alone.

U.K.

10-year yields are up 0.12 point, to 5.49%, while the 10-year U.S.

Treasury yield is up 0.08 point Wednesday morning, reaching 5.36%, the highest since 2002.

Reality check: These are massive moves in markets that form the bedrock of global financial markets.

And yet they don't appear to be driven by the kind of crisis dynamics and forced selling that fueled bond market volatility in the 2008 crisis, the 2014 Treasury flash crash and the March 2020 pandemic.