French government bonds came under slight selling pressure on Tuesday following the collapse of the French government, as investors awaited President Emmanuel Macron’s next move, potentially even including a snap election.

France's parliament ousted the minority government in a no-confidence vote on Monday over its plans to tame the ballooning national debt. President Emmanuel Macron's office said he would appoint a new prime minister in the next few days.

The yield gap between 10-year French and German government bonds and Bunds — a market gauge of the risk premium investors demand to hold French debt — widened by 5 basis points (bps) to 82 bps. Some strategists said some of that widening in the spread was due to a roll-over in the benchmark bond, which now references a November 2035 OAT , rather than May 2035 paper .

Investors were concerned that a new minority government would fail to chart a credible path towards reducing public debt, prompting a demand for higher risk premiums on the country’s sovereign bonds.

“The French spread can widen as spending cuts will likely need to be watered down to garner broader political support,” said Michiel Tukker, rate strategist at ING.

“However, we do not see snap elections in the near future,” he added.

The yield on the French November 2035 bond was at 3.488%, up around 1.5 bps on the day.

"It's not a catastrophe scenario. In this environment, credit spreads should be relatively well behaved," said Kevin Thozet, investment committee member at Carmignac.

The yield gap between Italian and French bonds narrowed by 1.6 bps, and was last at 3 bps.

Germany’s 10-year bond yield, the benchmark for the euro zone bloc, rose 3 bps to 2.67%. It hit 2.80% last week, its highest since March 26.

There are no signs of contagion across the euro area, with French bond spreads remaining below the peaks of over 90 basis points recorded at the end of 2024.

Italian bonds, which carry the euro area's heaviest debt load, steadied in line with safe-haven Bunds, with 10-year yields up 2 bps at 3.52%.

However, some analysts remained worried about the possible consequences of a weaker France within the European Union.

“The policy paralysis in Paris spells trouble for France and Europe,” said Holger Schmieding, chief economist at Berenberg. "It makes it even more difficult for Europe to stand up to Trump and Putin."

Markets also await key U.S. inflation data later this week, with producer prices due on Wednesday and consumer prices on Thursday. The figures will be crucial for shaping the Federal Reserve’s monetary easing path. The benchmark 10-year U.S. Treasury yield rose 2.5 bps to 4.07% in London trade, after falling to a five-month low on Monday.

(Reporting by Stefano Rebaudo, additional reporting by Naomi Rovnick, editing by Hugh Lawson)