France’s Rising Borrowing Costs Spark Eurozone Debt Crisis Fears

France’s borrowing costs have reached their highest levels in over two decades, with the yield on its 10-year government bond, or OAT, nearing 5.00% before easing slightly to around 4.90%. This surge in borrowing costs has intensified scrutiny on the country’s fiscal health and political stability.

The widening gap between French and German 10-year bond yields has also become a key concern. This spread briefly hit 150 basis points, its widest since the Eurozone debt crisis, before narrowing to around 140 basis points. Investors are demanding higher returns to hold French debt compared to German debt, which is considered safer.

France’s fiscal challenges are significant. The country’s deficit is projected to stay above 5% of GDP this year, and interest costs on government debt are expected to reach €91 billion by 2027. The government plans to issue a record amount of bonds next year, adding to the financial pressure if yields remain high. Sumitomo Mitsui DS Asset Management has reportedly sold its French government bonds, shifting funds into German debt and short-term Japanese bonds due to fiscal concerns.

The EUR/USD pair has been trending lower, influenced by the widening yield spread. The currency pair is currently trading within a bearish channel, with key support levels at 1.1135. While there are signs of a near-term bounce, traders are likely to view any short-term rallies as selling opportunities unless the pair breaks above the bearish channel and clears the 1.1300 handle.