French bond yields near 24-year high as new protests loom

The yield gap between OATs and Bunds widened by 5.5 bps to 152.50 bps. It reached 158.67 basis points in early October, the highest level since November 2011.The Italian spread also rose 4.5 bps to 113.51 bps. While not pivotal to the overall process, today's vote on the revenue side of the (French) budget bill takes on a little more importance as a near-term signal, Jamie Searle, European rate strategist at Citi, said.French far-right leader Marine Le Pen and hard-left rival Jean-Luc Melenchon extended their lead over other candidates in a poll published last week - before the weekend's events, a scenario analysts view as the least favourable for efforts to reduce France's fiscal deficit.

The protests highlight that any government will struggle to implement the required reforms and savings against broader public resistance, Benjamin Schroeder, senior rates strategist at ING, said. The beneficiaries (of the protests' political fallout) appear to be the right and centre candidates, while on the far left, Melenchon's chances of winning the presidential race have been pared back, he added, arguing that Melenchon's plans are viewed as among the most controversial.Meanwhile, euro zone benchmark Bund yields edged lower but traded within their recent range after last week's drop, as persistent energy price pressures kept investors from scaling back bets on further European Central Bank rate hikes.Oil prices advanced on Tuesday, with Brent hovering around a five-month high.Analysts said it will be difficult to materially reduce the market's bias towards further rate hikes, as a credible decline in energy prices remains elusive and winter weather is likely to play a crucial role in determining the path of gas prices.Germany's 10-year government bond yields, the euro zone benchmark, were down 2 bps to 3.43%.

They have moved between about 3.40% and 3.50% since early this month, barring last Thursday's drop, when tech stocks took a beating.Germany's 2-year government bond yield, more sensitive to policy rate expectations, fell 1.5 bps to 3.07%.