The bond sell-off was global. France was exposed.
France’s 10-year government bond yield rose to 4.924% on 1 October 2026, its highest reading since 2002. The US 10-year Treasury yield reached 5.34%, also its highest level since 2002.
The difference between the French 10-year yield and Germany’s Bund reached 1.4 percentage points, its widest since the 2011-2012 European debt crisis. Germany’s 10-year Bund ended the day at 3.52%, down 0.059 percentage point.
Rohan Khanna, Barclays’ head of European rates strategy, described France as Europe’s weak link. Seema Shah, chief global strategist at Principal Asset Management, pointed to the pace of the widening gap. “The speed at which the spread has got here is what is concerning,” she said.
Daily moves in France’s bond market reached 0.16 percentage point. Investors demanded more than 150 basis points to hold French 10-year debt rather than safer German bonds, while the France-Germany premium was heading for its largest weekly rise since at least 2007, up at least 40 basis points.
France entered the sell-off with government debt at 119% of gross domestic product in the second quarter. It intends to sell 340 billion euros of government bonds next year, the largest amount on record. Interest costs are projected to rise from 62.6 billion euros this year to 91.2 billion euros next year.
The deficit is expected to stay above 5% of GDP for a fourth consecutive year. Debt-servicing costs are projected to overtake spending on key areas including education and defence.
The ruling coalition has no parliamentary majority. Two former prime ministers have resigned amid disputes over budget tightening, while labour unions and students have held protests against the government’s austerity policies since September.
Growth offers little support. France’s economy contracted in the first quarter and was flat in the second.
France presented its 2027 budget bill on Thursday, proposing 43 billion euros in spending cuts and tax reforms intended to reduce the deficit. The price of insuring French sovereign debt against default through credit default swaps has climbed to its highest level since 2013.
Pressure was also visible elsewhere in Europe. Italy’s 10-year yield rose 0.068 percentage point to 4.708% on 1 October 2026. Greece’s equivalent yield gained 0.114 percentage point to 4.56%.
Hedge funds own about 7% to 8% of global sovereign bonds by value, yet conduct more than half of trading in Europe’s government bond market. Marion Le Morhedec, chief investment officer of fixed income at Fidelity, said the European Central Bank would use its available tools if it judged financial stability to be under threat.
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