The yield on French 10-year government bonds (OAT) has risen to 4.5%, the highest level since the 2008 global financial crisis.

According to reports, the direct factors pushing up French bond yields include two aspects: first, the sustained surge in global energy prices following airstrikes by the U.S. and Israel on Iran, which has heightened market concerns about inflation; second, investors are worried that central banks around the world will generally raise interest rates to combat inflation, leading them to demand higher returns for holding government bonds as compensation.

Looking at the yield trajectory, the yield on French 10-year government bonds rose from 3.45% in February this year to 3.90% in August, and then to 4.23% in September (with some trading days further rising to 4.5%), showing a rapid increase over just a few months. Notably, the yield on French government bonds has at one point exceeded that of Greek bonds (4.057%)—this phenomenon is symbolically significant, as Greece had received large-scale EU bailouts after the 2008 financial crisis, and now France's yield surpassing Greece's is seen as a sign of deepening market concerns about its debt sustainability.

France's own fiscal and political background is also under pressure: last year, France's fiscal deficit reached 5.1% of GDP, one of the highest levels in the Eurozone, far exceeding the EU's 3% limit; national debt has risen to 117.5% of GDP, the highest level since the end of World War II, nearly double the 60% debt limit set by the EU's Stability and Growth Pact. Prime Minister Sebastien Lecornu is currently under immense pressure to lead the 2027 budget negotiations; previously, the French government has collapsed multiple times due to budget disagreements, and the 2026 budget was only passed after two failed votes of no confidence.

From a market mechanism perspective, the surge in French bond yields reflects a repricing of sovereign debt risk premiums—investors demanding higher yields is essentially a comprehensive pricing of a series of risks related to France's persistent fiscal deficits, debt levels approaching post-war highs, and repeated political deadlocks leading to budget difficulties; meanwhile, the global energy price shock and subsequent interest rate hike expectations triggered by the Iran conflict have further pushed up global sovereign bond yields, including France's. The combination of these two forces has caused the speed of increase in French bond yields to be significantly faster than what could be explained by the deterioration of its fiscal fundamentals alone. Who benefits: hedge funds holding short positions in French bonds or shorting bonds of peripheral Eurozone countries may profit from the rising yields; who is under pressure: the French government's refinancing costs will continue to rise as yields climb, creating a potential negative cycle of "deficits pushing up rates, rates pushing up debt servicing costs, and worsening debt servicing costs further worsening deficits". The large holdings of domestic government bonds by French banks and insurance institutions will also face pressure from unrealized losses, and the widening yield spread between French and German bonds may reignite market concerns about sovereign debt risk stratification in the Eurozone and the stability of the euro.

Source: Public Information