Eurozone Contagion Fears Spark Global Bond Selloff Acceleration
The global bond selloff continues to accelerate, with some borrowers feeling more pain than others. French bonds, specifically OATs (French government bonds), have been hit particularly hard due to budget concerns and rising investor anxiety. This has led to a significant increase in the spread between France's borrowing costs and those of Germany, a key measure of investor concern.
France has one of the worst fiscal trajectories in the developed world, and its 2027 budget includes €43bn of new adjustment measures aimed at narrowing the deficit to 5.0% of GDP from an expected 5.4% in 2026. The draft budget was presented to the Council of Ministers on 1 October.
The widening fiscal gap has fueled concerns that France's financial stress could spread across the eurozone, causing contagion effects. This has contributed to a surge in investor demand for German bonds, driving up yields and pushing down the value of the euro against major currencies, including the US dollar and Swiss franc.