The key facts

  • The yield on 10-year OATs exceeded 5% for the first time since 2002; the spread over German bonds is almost 160 basis points.
  • Moody's will review France's rating on Friday; most economists expect a downgrade
  • The 2027 budget with €43 billion in cuts lacks a majority for adoption under Prime Minister Lecornu

Record French bond yields

The yield on France's 10-year government bonds has exceeded 5% for the first time since 2002, Euronews reports. Yields have been rising for several weeks amid disputes among parliamentarians over the 2027 budget, which provides for multi-billion-euro spending cuts. Yields last reached such levels during the dot-com financial crisis. The spread over German 10-year bonds, considered the European benchmark of reliability, jumped to almost 160 basis points.

Debt and rates for the economy

France's public debt has reached about 120% of GDP — one of the highest figures in the eurozone and significantly above the EU-set threshold of 60%. OAT bonds issued by the French finance ministry serve as a benchmark for interest rates across a significant part of the economy, so borrowing costs for businesses and households may start to rise.

Pressure on the government

The bond sell-off is intensifying pressure on the government ahead of Moody's decision, which on Friday will review France's sovereign rating. Most economists expect a downgrade, which would automatically increase the state's borrowing costs. Prime Minister Sébastien Lecornu is trying to get the 2027 budget approved in parliament without having a political majority for €43 billion ($48 billion) in spending cuts. Even if the budget is adopted, the deficit will fall only to 5% of GDP next year — noticeably above the 3% limit for EU countries.

Protests and riots

Protests held over the weekend, whose participants demanded, among other things, increased spending on schools and other public services, escalated into the worst street riots in recent years.