French 10-year yield tops 5%, widest spread to Bunds since October
France's 10-year borrowing cost rose above 5% for a second straight session in Paris trading, a level last seen in 2002, as riots and budget uncertainty weigh on bonds.
The gap between French and German 10-year yields, a closely watched gauge of risk, widened to 1.57 percentage points, edging close to a recent high reached on October 2. That earlier spike came as investors worried whether Paris could get its 2027 budget through a deadlocked parliament.
The latest move follows the country’s worst urban unrest in years, with further unrest feared in the days ahead. Analysts said pressure on French debt is likely to persist in the near term given domestic political strain and external uncertainty, but they stopped short of calling it a repeat of the region’s earlier sovereign debt crisis.
Separately, ING flagged French political and fiscal uncertainty, alongside Middle East tensions, as a potential source of volatility for European credit markets next year. The bank said OAT-Bund spread swings reflect broader fiscal concerns across the euro area, though it does not expect these risks to meaningfully disrupt bank bond issuance.
Why it matters: A wider OAT-Bund spread signals investors demanding more compensation to hold French debt over German Bunds, which can pressure the euro and add to borrowing costs across the euro zone. Persistent political and fiscal uncertainty in France also feeds into broader European credit spreads and risk sentiment.
Sources: Investing.com (economy); SCMP Business; Trend (business)