French 10-Year Government Bond Yield Rises to 5.039%, Highest in 24 Years
The yield on French 10-year government bonds rose by 4 basis points, reaching 5.039%, the highest level since 2002.
The yield had previously surpassed the 5% mark during intraday trading on October 21, peaking at around 5.022%, and closing that day at 5.009%, with a daily increase of about 8 basis points; the spread over German 10-year government bonds widened to about 157 basis points, nearing levels seen during the 2011 European debt crisis.
Factors driving this include the French government's difficulties in advancing the 2027 budget in a divided parliament, making it challenging to reduce the deficit target from the current approximately 5.4% of GDP to below 5%. Public debt has reached about 119% of GDP; nationwide protests against high living costs continue, with some localized violent clashes.
Global bond yields are rising in tandem, primarily due to rising energy prices pushing up inflation expectations, with central banks maintaining tight policies; France's yield increase is significantly greater than that of core Eurozone countries like Germany due to its debt size and political uncertainty.
The French Treasury plans a record net financing scale of about €340 billion next year to cover deficits and refinance maturing debt; market concerns about the ability to pass the budget, coupled with uncertainties surrounding next year's elections, continue to suppress demand for OATs.
Investors are reducing their holdings of French government bonds and demanding higher risk premiums, with some funds shifting towards German bonds and other core sovereign debt; the beneficiaries are buyers of newly issued French bonds that offer higher coupons, while those under pressure are institutions holding low-yielding OATs and the French government relying on low financing costs.
Source: Public Information
ABAB AI Insight
Since the early 2010s European debt crisis, France's fiscal discipline has been weaker than Germany's. Although some reforms were pushed after Macron took office in 2017, the proportion of public spending to GDP remains high, and the deficit expanded further during the pandemic and energy crisis, with debt rising from about 98% to the current approximately 119%. The budget passage, reliant on a parliamentary majority, has repeatedly failed in a divided parliament.
The current funding path reflects international investors demanding higher yields on newly issued French bonds, while France is attempting to hedge energy costs by securing LNG and diesel supplies with Gulf countries and releasing strategic reserves to alleviate protests against high living costs, thereby stabilizing fiscal and political expectations, but has not prevented the widening of spreads.
Similar paths were seen during the 2011-2012 Italian and Spanish bond crises, as well as after the UK mini-budget in 2022, leading to sell-offs in gilt bonds; currently, France is in a "high debt + political fragmentation" phase, with the market pricing in the inability to pass the budget and election uncertainties through widening spreads, rather than purely inflation expectations.
This represents a shift in pricing power: sovereign financing costs are transitioning from "default low interest of core Eurozone countries" to risk premiums determined by political execution capability and the credibility of deficit reduction, with holders demanding higher compensation, increasing refinancing pressure on the government, while providing a reference pricing anchor for other high-debt Eurozone countries.
ABAB News · Cognitive Law
Bond yields are real-time quotes of political execution capability
Widening spreads equal the market pricing in the failure of the budget
The financing rights of high-debt countries are determined by investor votes