French government 10-year bond yield tops 5% for first time since 2002
The yield on the French government's benchmark 10-year bond surpassed 5% on Wednesday as investors demanded a higher return for holding the country's debt.
The French government's 10-year bond yield has surpassed 5% for the first time since 2002, marking a significant increase in borrowing costs. This surge in yields has been driven by ongoing negotiations over a 2027 budget that proposes substantial spending cuts of €43 billion to address a mounting debt burden of 120% of France's GDP, a level far exceeding the EU's 60% limit.
The French Treasury's OAT bond, which influences interest rates across the economy, has also witnessed a steep rise in yields. The widening yield gap between the French and German 10-year bonds now stands at nearly 160 basis points, signaling heightened concerns about the country's creditworthiness. This development comes as a ratings agency, Moody's, is set to release its assessment of France's sovereign credit rating, with expectations that a downgrade will further elevate borrowing costs.
Prime Minister Sebastien Lecornu is pressing for the budget's approval in parliament, despite lacking a majority for the proposed €43 billion in cuts. The deficit is projected to fall to 5% of GDP next year, still above the EU's 3% threshold. Simultaneously, protests against the budget cuts have erupted into some of the most severe street violence witnessed in recent years, highlighting the public's discontent.
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