French bond yields hit 24-year high as political and fiscal risks mount

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French bond yields hit 5%

Highlights

French 10-year bond yields briefly reach 5%.
Political unrest raises concerns over French debt.
Higher oil prices push eurozone yields upward.

According to Reuters, the yield on France's benchmark 10-year government bond briefly reached 5.002% before retreating slightly below 5%. The yield was approximately 8 basis points higher on the day, while the gap between French and German borrowing costs widened to around 157 basis points.

Political unrest and budget uncertainty pressure French bonds

France faces mounting difficulties in restoring confidence in its public finances as a weakened government struggles to secure parliamentary support for its budget. Investors remain concerned about the country's substantial deficit, growing debt burden, and uncertainty surrounding next year's election.

Widespread protests have added to those concerns, although violence had eased by Tuesday. Further demonstrations are planned for Saturday, raising questions about the government's ability to implement politically sensitive fiscal measures.

The unrest is also affecting businesses. Carrefour, one of Europe's largest retailers, reduced its operating profit margin growth targets on Tuesday, citing the financial consequences of the disturbances.

French bond yields have risen more than 16 basis points this week, compared with an average increase of 5.4 basis points across major government bond markets, according to LSEG data.

Rising oil prices lift borrowing costs across Europe

The pressure extends beyond France as governments confront higher financing costs and persistent inflation risks.

Brent crude rebounded above $110 per barrel after briefly retreating from recent highs, reinforcing concerns that expensive energy could keep inflation elevated and encourage central banks to maintain restrictive monetary policies.

German 10-year Bund yields, the eurozone benchmark, increased 3 basis points to 3.426%, while two-year German yields reached 3.083%.

Italy has experienced a smaller increase in borrowing costs despite protests over living expenses in Milan. Italian 10-year yields have risen approximately 8 basis points this week, while the spread over German Bunds stood near 113 basis points.

France faces growing pressure to restore investor confidence

The difference between French and German yields is particularly significant because it measures the additional compensation investors demand for holding French government debt.

At approximately 157 basis points, the spread is approaching levels last recorded in 2011, highlighting France's unusually high borrowing costs relative to its eurozone peers.

The widening gap could make government financing more expensive precisely when authorities need to reduce the deficit. Without greater political stability and a credible budget agreement, France risks facing sustained pressure in debt markets, complicating efforts to restore fiscal confidence.

Earlier, we reported that France loses investor appeal as debt risks mount.

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