By Harry Robertson
LONDON, Nov 27 (Reuters) - The risk premium investors demand to hold French debt rose to its highest level since 2012 on Wednesday in a sign of worries over the country's budget, while benchmark German yields fell along with those in the United States.
The spread between France's and Germany's 10-year bond yields rose to 90 basis points (bps), the highest in more than 12 years, before falling to around 88 bps.
France's 10-year bond yield was last up 2 bps to 3.043%, while Germany's fell around 3 bps to 2.165%. Yields rise as prices fall and vice versa.
Far-right leader Marine Le Pen has been threatening to bring down France's coalition government in a no-confidence vote, over a disagreement with Prime Minister Michel Barnier over the proposed budget.
"Investors remain concerned about political developments in France, especially due to the government’s difficulties in approving next year’s budget," said analysts at Italian bank UniCredit in a note on Wednesday.
"The situation remains fluid, and further widening of the OAT-Bund (French-German) spread cannot be ruled out."
Outside of France, euro zone bond yields fell along with those in the United States, although there was little obvious trigger for the move.
The 10-year U.S. Treasury yield, which sets the tone for borrowing costs around the world, was down 3 bps at 4.271%.
Short-dated German yields also fell, with the two-year rate down 3 bps at 2.01%, around its lowest in two years.
Italy's 10-year bond yield was down 1 bp at 3.449%.
A key gauge of the market's long-term euro zone inflation expectations fell below 2% for the first time since July 2022 on Tuesday, a sign investors think faltering growth means inflation could undershoot the European Central Bank's target. (Reporting by Harry Robertson Editing by Alexandra Hudson)
