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France's CAC up over 2%

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French-German bond spread narrows

By Amanda Cooper

LONDON, Oct 15 (Reuters) - French markets got a boost on

Wednesday from a combination of upbeat results for home-grown

luxury behemoth LVMH, merger activity and the promise of a more

stable political backdrop that underpinned a three-day rally in

beaten-down French bonds.

The blue-chip CAC 40 soared by 2%, making it the

best performing major index in Europe, driven largely by LVMH

and competitors such as Hermes and Christian Dior

, after upbeat results from the world's largest luxury

group.

Gains were not confined to one sector. Bouygues Telecom

shares jumped 9% after a joint bid to buy a slice of a

major rival's domestic business.

BONDS GET A BOOST

French government borrowing costs, which have flirted with

multi-year highs in 2025 on growing investor concern about the

country's finances, hit two-month lows.

Prime Minister Sébastien Lecornu's decision on Tuesday to

delay pension reform until after the 2027 election gave

investors enough of an immediate jolt of confidence in the

survival of the government to scoop up French assets.

"Has France now turned 'le corner'? Not yet," Rabobank macro

strategist Stefan Koopman said.

"The scope for further rally is limited. Near-term political

risks persist until budget negotiations conclude, and

longer-term compromises may dilute fiscal consolidation and

leave the French (yield curve) exposed to future setbacks," he

said.

Lecornu, who resigned as prime minister last week, only for

Macron to reappoint him days later, ceded to pressure from

leftist lawmakers on the reforms. Focus turns to Lecornu's

deficit-squeezing budget plans for 2026. He faces a

no-confidence vote on Thursday.

LVMH LEADS STOCKS HIGHER

Shares in LVMH, the world's largest luxury retailer, rose

12%, making it the largest gainer in Paris and in the broader

European market, after reporting forecast-busting sales for the

third quarter, driven by better Chinese demand.

French stocks have lagged European peers this year because

of political uncertainty. With a gain of just 7%, the CAC is the

worst-performing major stock market, well Spain's IBEX,

the top performer, up 35%.

This reticence has shown up in bond markets too.

On Wednesday, the premium investors demand to hold French

government debt, over German Bunds tumbled below

77 basis points for the first time since early September. That

gap rose to nearly 90 bps earlier this month, nearing last

November's 2012 highs.

French yields fell 3.2 basis points to

around 3.365%, their lowest since mid-August. Yields have fallen

by 10 bps in the last three days, their longest stretch in six

weeks.