‘Not sustainable’ – French borrowing costs soar amid Budget and election uncertainty
France is facing a period of acute bond market stress that could last several years unless the presidential frontrunners for next year’s election commit to tackling its gaping deficit, analysts have warned. The difference between French and German government borrowing costs – a key metric used to determine French debt risk – widened beyond 120 [...]
France is experiencing significant bond market stress, with the difference between its government borrowing costs and Germany's widening beyond 120 basis points for the first time since 2012. This comes just a day before the French government unveils its 2027 Budget. French bonds, or OATs, are currently trading 22 basis points higher than their Italian counterparts, the highest level since the Eurozone's establishment.
The rise in bond costs is attributed to heightened speculation over France's fiscal plans and the spread of price pressures in its economy, with inflation hitting a two-year high of 3.4%. The French debt agency plans to issue €340 billion in OATs over the next year to address its budget deficit, which is projected to increase to 5.4% this year.
The country's current deficit is significantly higher than the EU's target. The looming presidential election, which is expected to be between President Macron and populist leaders Marine Le Pen and Jean-Luc Melenchon, adds to the uncertainty. Both populists have promised increased public spending and higher taxes, which could spook bond investors.
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