The yield on 10-year French government bonds has crossed the 5% threshold and reached between 5.06% and 5.11% - the highest level in 24 years. This means the cost of French funding has exceeded that of US 10-year bonds for the first time since 2013.
The rise in yields means that France has to pay more when it borrows money from the markets. The pressure is being compounded by budget uncertainty and political tensions in the country, where protests have escalated into riots, arson and vandalism.
The 2027 budget is at the center of the dispute
Prime Minister Sébastien Le Corneille is pushing for spending cuts of 54 billion euros in the 2027 budget. However, a divided parliament has blocked some of the measures, increasing investor concerns about the government's ability to control public finances.
France's public debt has reached 3.6 trillion euros, or nearly 120% of gross domestic product. The budget deficit was 5.1% of GDP at the end of last year. The French National Institute of Statistics reports the same deficit size for 2025, while the European Commission forecasts debt to exceed 120% of GDP in 2027.
Finance Minister Roland Lescure warned that the cabinet could use Article 49.3 of the Constitution to push through the budget without a simple parliamentary vote. “We have no choice”, Lescure said.
Spread with Germany reaches 150 basis points
The difference between the yields on French and German 10-year bonds has reached 150 basis points, or 1.5 percentage points. The indicator is closely watched by investors as it reflects their assessment of the risk of French debt to the eurozone's leading economy.
The market pressure also spread to the euro, which fell to a 17-month low against the US dollar. The CAC 40 index led the decline in European stocks, and the decline also covered the pan-European STOXX 600.
Banks are more protected, but refinancing is more expensive
The shares of European financial institutions have fallen by 10% in six weeks, and the three largest French banks have lost 17% of their market capitalization. However, the banking system has higher capital buffers compared to the period around the debt crisis in 2011.
European banks hold government bonds for about 4.3 trillion. euros, but the share of national debt in their portfolios has fallen to 41% from over 50% a decade ago. According to WisdomTree, the exposure of leading French lenders to domestic government debt is between 15% and 30% of their top-tier capital.
French banks remain vulnerable because they are among the largest issuers of wholesale debt in the European Union. With each new refinancing, higher bond yields will increase their costs.
Sources: money.bg, apnews.com, lemonde.fr