Turmoil in the government bond market, particularly concerning France's fiscal position, has led to a rise in its borrowing costs. The gap between France and Germany’s borrowing costs, a key indicator of investor concern, has widened to its highest level since 2012.
Yesterday, the yield on French 10-year government bonds (OATs) jumped to their highest point since 2002. This comes amid investor reluctance due to political uncertainty, with presidential elections set for 2027, and concerns over France’s public debt, which has reached a record high.
The euro is currently trading close to a 17-month low, having fallen by over 0.75% yesterday to €1.1214. Ipek Ozkardeskaya, a senior analyst at Swissquote, noted that a weakening appetite for French debt is a significant issue for the broader euro area and the euro itself.
France's government proposed a budget for next year that includes €43bn in cuts and tax rises in an attempt to stabilise the situation. Finance minister Roland Lescure stated the importance of putting France back on track for deficit reduction. However, analysts at ING warn that even with this plan, the projected budget deficit of 5% of GDP next year would be too high to prevent the national debt, already at 119% of GDP, from increasing further.