La presión sobre la deuda francesa pone en jaque a los inversores en Europa

Europe's bond market is currently experiencing significant distress amid fears of persistent inflation forcing the European Central Bank to adopt a tougher stance. However, the deepening concerns regarding France's debt pose a more profound issue, intensifying the country's bond sales. Jeff Mueller, co-head of fixed income at Morgan Stanley IM, warns that prolonged volatility in bond prices could draw attention from policymakers.

France's debt skyrocketed to 3.59 trillion euros, or 119% of GDP, in the second quarter, marking a historic peak for the nation. Experts believe the situation is far from resolution and do not foresee an efficient exit strategy. Some even fear a much larger debt crisis in France that could spread to other European countries. France is not the only eurozone member struggling with excessive borrowing, high budget deficits, and political opposition to economic reforms.

The high debt burden of countries like Italy and Bulgaria also makes them particularly vulnerable in a world of higher interest rates.

Investors are closely monitoring any signals of potential contagion in the European bond market. Last week, France unveiled a package of measures aimed at drastically reducing the budget deficit, from 5.4% this year to 5% of economic output by 2027. The government's optimistic assessment only adds to the pressure on France's bond market.

The 10-year French bond reached a 4.85% yield, the highest since 2002, while its yield surged by 129 basis points since the start of the year, and 2026 is already its worst year since 2022.

France's risk premium (the yield difference between French and German 10-year bonds) surpassed 150 basis points last week, the highest level since 2011, amid the eurozone's deepest crisis. In addition to demanding a higher premium for investing in France compared to Germany, investors now face higher yields on French bonds compared to Italy and Spain, reaching 4.62% and 4.12% for 10-year bonds, respectively, the highest since 2023 and 2013.

Looking ahead, France's prospects appear bleak: a complicated political environment, limited fiscal maneuverability, and a lack of willingness to implement overdue reforms. Benoit Anne, director and head of market analysis at MFS IM, notes that the signals do not stem from the absolute level of interest rates but from the widening differential with Germany, the composition of French bond holders, and most importantly, the future trajectory of demand for French debt. The key determinant is not the debt level alone but its future direction, according to Anne.

Experts advise caution as the risks remain elevated due to the absence of reassuring fundamental signals. Ostrum IM advises an underweight stance on French bonds, while Berthelot at Ostum AM expects investors to be neutral or short on French bonds. Philippe Berthelot from Ostum AM believes investors have already protected themselves and now hold a neutral or short position in French assets.

A localized crisis in France could undermine the attractiveness of European assets, though systemic risks have decreased due to stronger macro fundamentals and a more resilient European banking system, adds Anne-Laure Kiechel, CEO of Global Sovereign Advisory. A risk premium for French debt nearing 175-180 basis points (currently at 137) could signal when the ECB might start acting, according to Jamie Searle at Citigroup.