Investors are putting a higher price on 38% of French corporate bonds than on the country’s own government debt, according to Bloomberg. That share is an 18-fold increase from the start of the year, a striking reversal in a market where sovereign bonds are usually the benchmark.
France’s 10-year government bond yielded 4.74% at Tuesday’s close, compared with 3.63% for the equivalent German Bund. The resulting 111 basis point premium was the largest investors had demanded for French debt over German debt since the depths of the 2012 eurozone crisis.
The wider market move has left France facing a harder test: it must convince investors that it can bring its finances under control without direct help from its eurozone partners.
At its monthly meeting in Luxembourg on the 8th, the Eurogroup considered the rise in French yields and the country’s fiscal strains. The 21 countries using the euro ruled out a direct rescue of the French government bond market, and no eurozone institution is ready to lower France’s borrowing costs now.
Kyriakos Pierrakakis, the Greek finance minister who chairs the Eurogroup, told a news conference after the meeting that the group trusted France’s commitment to public finances.
Christine Lagarde, president of the European Central Bank, said the bank has tools to respond to market turmoil, while signalling caution about using them immediately because their activation carries strict conditions.
One such tool is the Transmission Protection Instrument, or TPI. It permits the ECB to buy a member state’s bonds when a sharp increase in yields threatens the transmission of monetary policy, yet its conditions include sound public finances.
France’s finances have deteriorated alongside its political instability. Its deficit was 5.1% of GDP last year, with public debt at 115.6%.
Moody’s cut France’s rating from Aa2 to Aa3 in December 2024. Fitch lowered it to A+ earlier this year, the first time one of the three major agencies had put France in single-A territory.
President Emmanuel Macron’s 2024 snap election left parliament divided among three mutually hostile blocs. The struggle over the budget has brought three changes of prime minister since 2024.
Sébastien Lecornu, France’s prime minister, is preparing to present a €54 billion austerity budget to the Council of Ministers on Wednesday, 1 October. His first government lasted fourteen hours before lawmakers forced it to resign over the cabinet’s composition.
The government’s wider budget proposal aims to bring the deficit to about 5% of GDP next year, from an expected 5.4% this year. Eurogroup participants stressed the urgency of passing France’s 2027 budget to help stabilise markets.
France’s 10-year yield has risen from around 3.2% in February to near 5% recently. On the 2nd of this month, the gap between French and German 10-year yields exceeded 150 basis points, its widest point since the eurozone debt crisis of 2010 to 2012.
On certain maturities, France’s 10-year sovereign yield now exceeds those of Italy and Greece for the first time in over a decade.
The finance ministry has confirmed public debt of 119.3% of GDP in 2026, the highest ratio France has recorded since 1978. Without further consolidation measures, projections put the ratio at 121.7% in 2027.
ING Economics said annual interest payments are now expected to run approximately €5 billion higher in 2026 and €7 billion higher in 2027 than had been projected a year earlier. A presidential election is due in April next year.
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