France’s financial stability is under scrutiny as the premium investors demand to buy its 10-year government bonds hit a 15-year high. The yield on these bonds rose to 5.11 per cent, the highest since July 2002, reflecting growing concerns over the country’s fiscal health and ongoing social unrest. The risk premium over German Bunds widened to 173.58, a level not seen since the euro zone debt crisis in November 2011.
French authorities are preparing for more protests this Saturday, with plans to deploy troops alongside additional police to maintain order. Political uncertainty ahead of next year’s presidential election and difficulties in passing a budget have further dampened market sentiment. Despite improvements in industrial sentiment in October, the selloff in French government bonds persisted, highlighting investor unease.
Across the euro zone, borrowing costs have risen due to higher energy prices and expectations of a hawkish European Central Bank (ECB) response. Germany’s 10-year government bond yields fell 4 basis points to 3.38 per cent, supported by safe-haven demand. Brent crude futures rallied over US$2 a barrel following Houthi attacks in Saudi Arabia, while natural gas prices remained near their highest since December 2022.
Yield gaps over Bunds widened for other euro zone countries, with Belgium’s spread reaching its highest since 2012, Italy’s rising to 123 basis points, Spain’s to 71 basis points, and Greece’s to 102 basis points. ECB chief Christine Lagarde previously emphasized a moderate policy response, but money markets now expect the deposit rate to reach 3.26 per cent by late 2027, up from the current 2.50 per cent.