The repricing of French long-term bonds began after the end of the global zero interest rate era in 2022, but domestic political instability since 2024 has widened the credit spread of France relative to Germany. After the early parliamentary elections in 2024, the lack of stable majority support for budget proposals, fiscal tightening, and structural reforms has led the market to convert political fragmentation into a risk premium for sovereign bonds.

In terms of capital pathways, France's fiscal model relies on the continuous issuance of medium- to long-term bonds to refinance existing debt and deficits. A debt ratio of 120% does not necessarily trigger a crisis; the key is whether nominal economic growth can cover the average financing cost; however, when new bond yields approach 5% and the deficit remains above 5%, the new interest will crowd out spending on public services, defense, industrial subsidies, and social welfare.

Historically, during the European debt crisis from 2010 to 2012, France was seen as a core low-risk issuer outside Germany; now, the 30-year yield has returned to levels around 2011, but the crisis dynamics are different. There is currently no panic over the disintegration of the euro; what is being repriced by the market is the long-term fiscal sustainability, reform capacity, and policy execution ability of the second-largest economy in the EU.

This represents a transfer of pricing power. During the European Central Bank's large-scale bond purchasing period, the pricing power of long-term government bonds was mainly held by the central bank's balance sheet; after quantitative tightening and normalization of policy rates, the pricing power has returned to private bond investors. Investors are no longer only concerned about whether France will default, but are comparing its 30-year capital occupation, inflation uncertainty, political risk, and relative returns with other sovereign debts, thus demanding a higher term premium.

ABAB News · Law of Cognition

Deficits are not scary; what is scary is when financing costs exceed growth.
Political deadlock does not immediately lead to default, but it will immediately increase costs.
Rising long-term bond yields mean that future finances are being sold off.