France's borrowing costs shot up on Monday, while the Paris stock market slipped and bank shares were down following the resignation of Prime Minister Sebastien Lecornu, plunging the European country even deeper into the political crisis.
The CAC 40 index of blue-chip stocks was down 1.5% at around 10:25 a.m. GMT, having fallen by more than 2% shortly after the announcement.
The rise in government borrowing costs sent bank shares into a tailspin, since they are large holders of French sovereign debt.
Shares in European banking giant BNP Paribas were down more than 4% while Societe Generale shed more than 5% and Credit Agricole lost more than 4%.
Alexandre Baradez, market analyst at IG France, said the drop in bank shares was due to Lecornu's resignation.
"With the rise of 10-year yields, investors are readjusting their risk," Baradez said.
The yield on 10-year French government bonds, or the country's cost of borrowing, surged briefly to 3.61% before easing to 3.57%.
It was up from 3.51% in the previous trading session.
"If the 3.60% threshold is crossed, French debt could be exposed to massive attacks, making markets more nervous," said Antoine Andreani, who heads research at trading platform XTB France.
The spread between French bonds and their German equivalent – a key measure of how investors perceive France's credit risk compared to Germany – reached its highest in nine months.
The gap hit 89 basis points compared to 81 the day before.
"Lecornu's resignation has plunged the political arena into uncertainty."
"Investors fear a domino effect on economic and fiscal policy," Andreani said.
President Emmanuel Macron named Lecornu, a former defense minister, to the post last month – the shortest stint for a prime minister in modern France.
The largely unchanged cabinet he unveiled late on Sunday sparked fierce criticism across the political spectrum.
Lecornu had faced the daunting task of finding approval in a deeply divided parliament for an austerity budget for next year.
Lecornu's two immediate predecessors, Francois Bayrou and Michel Barnier, were ousted by the legislative chamber in a standoff over the spending plan.
