France's 30-year yield touches highest since 2011 on political, deficit concerns

By Joice Alves

LONDON, Aug 27 (Reuters) - Political turmoil pushed France's 30-year yield to its highest level since 2011 on Wednesday, while President Donald Trump's attempt to fire a Federal Reserve governor raised broader concerns about the U.S. central bank's independence.

The prospect of France's minority government losing a confidence vote and collapsing triggered a sharp selloff in French stocks and bonds earlier this week.

If Prime Minister Francois Bayrou's administration does fall, President Emmanuel Macron may try to install a new premier or dissolve parliament and hold new legislative elections, neither of them moves likely to solve France's budget issues.

The French 30-year yield FR30YT=RR rose 4.5 basis points (bps) to 4.444%, its highest since November 2011. When a bond's yield rises, its price falls.

The French 10-year yield FR10YT=RR rose 3bps to 3.532%, its highest level in five months.

Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone bloc, was 1.5 bps lower at 2.707%.

The gap between French and German 10-year yields, a gauge of the premium investors require to hold riskier French debt, was at its widest level since April at 82 bps. Last year the spread touched 90 bps, its highest level since the euro zone crisis in 2012. DE10FR10=RR

"The French government's struggle to pass its budget is not entirely surprising, but it is all coming to a head a little sooner than expected," Benjamin Schroeder, senior rates strategist at ING, said.

"The latest spread moves on the back of French political turmoil still point to some containment of the issue within French bonds," he added.

The gap between French and Italian spreads, which was more than 150 bps just two years ago, narrowed to 8 bps. FR10IT100=RR

The political situation in France added to worries in global bond markets about rising deficits and the independence of the Fed.

Fed Governor Lisa Cook will file a lawsuit to prevent Trump from firing her, a lawyer for Cook said, after Trump said he would fire Cook for alleged "potential criminal conduct" related to mortgages she took out in 2021.

The U.S. Treasury yield curve steepened further on Wednesday as markets kept a close eye on the impasse.

ING's Schroeder said concerns around the Fed's independence could be "country-specific," as investors increase U.S. inflation expectations and seek a higher term risk premium for U.S. bonds to compensate for volatility.

"A further rise in the back end of the U.S. curve does not necessarily translate to higher yields for euro zone bonds," he said.