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French yields have been rising for weeks as lawmakers wrangle over a 2027 budget that calls for billions of euros in spending cuts to reduce a debt pile that now stands at around 120% of France’s GDP – one of the highest levels in the eurozone and well above the EU limit of 60%.
The French Treasury’s OAT bond is also used to set interest rates across a wide swath of the economy, meaning borrowing costs could begin rising for businesses and households.
The last time it was that high was during the dot-com financial crisis.
The spread between the 10-year yield and the German 10-year bond, considered the European benchmark of creditworthiness, also surged to nearly 160 basis points.
The bond selloff puts further pressure on the government ahead of a decision Friday by the ratings agency Moody’s on France’s sovereign credit rating, with most economists expecting a downgrade that would automatically raise the government’s borrowing costs.
Prime Minister Sebastien Lecornu is trying to get a 2027 budget approved in parliament despite not having a political majority for the €43 billion ($48bn) in spending cuts he seeks.
Even if approved, the budget would bring France’s deficit down to only 5% of GDP next year, well above the 3% limit for EU members.
Meanwhile, protests over the weekend calling in part for more spending on schools and other public services, degenerated into the worst street violence seen in years.
Additional sources • AFP