"The Weak Link": The risk premium on French government bonds has approached a 15-year high

On October 20, the risk indicator for French government bonds broke through a key level. This underscores the challenges facing the French government as it tries to reduce the budget deficit while simultaneously dealing with protests over rising prices, according to Bloomberg.

The additional yield that investors demand for holding 10-year French government bonds (Obligations Assimilables du Trésor, OAT) compared to more reliable German bonds reached 154 basis points, the highest level since October 2, according to Bloomberg. Earlier this month, the spread rose to a peak of 159 basis points— the highest level since November 2011 —amid mounting political and fiscal pressures, prompting many investors to sell off French government debt. On Tuesday, French government bonds fell in price, and their yields once again approached 5%—the highest level in more than 24 years, Reuters notes. German bonds, by contrast, rose in price: their yield fell by two basis points to 3.44%.

At the same time, France’s main stock index, the CAC 40, fell 0.8% on October 20. The euro, in turn, strengthened slightly as unrest in France subsided overnight, according to CNBC. During the session, the euro gained 0.2% and traded at $1.1231 after hitting a low last week of $1.1113, its lowest level since May 2025.

"The bond market now has much more choice in terms of who to lend money to. And if you don’t trust the government, company, or sector you’re lending to, you’ll simply demand a higher rate from them,” said Karen Ward, chief market strategist for JPMorgan Asset Management in the EMEA region (Europe, the Middle East, and Africa) Karen Ward, Chief Market Strategist for the EMEA region (Europe, the Middle East, and Africa) at JPMorgan Asset Management.

The sell-off of French government bonds served as a reminder to the BlackRock Investment Institute that the intensifying battle for capital is forcing investors to scrutinize borrowers more closely, especially now that many markets are offering high yields, Bloomberg reports. Bonds around the world came under pressure, but France emerged as the weak link, the agency notes. BlackRock strategists do not rule out further volatility in debt markets, the WSJ continues. However, they say the current situation is “significantly different” from the 2011–2012 eurozone debt crisis. “France’s public debt has risen from about 89% of gross domestic product in 2011 to approximately 119% today, while the eurozone’s aggregate public debt has returned to its 2011 level—about 89%,” the BlackRock report states.

“The unrest is clearly not helping sentiment toward OATs, and recent days underscore just how difficult it will be for any French government to strike a balance between pressure from the markets, which are demanding greater austerity, and pressure from the streets, which are calling for increased spending,” — The Wall Street Journal quotes Commerzbank interest rate strategist Christoph Rieger as saying. He believes the latest developments show signs of a global—rather than merely French—debt crisis.

Last weekend, protests over rising prices took place across France, which in some cities escalated into riots and arson. However, by the start of the week, the protests had largely subsided after authorities imposed stricter security measures, including curfews in certain areas of cities across the country, according to Bloomberg.

Nevertheless, public debt exceeding the country’s GDP and one of the largest budget deficits in the eurozone mean that the government cannot simply increase spending to please voters, the agency notes. Furthermore, these events have coincided with a period of peak political and financial tension—just six months before the election to choose Emmanuel Macron’s successor, Bloomberg points out.

This article was AI-translated and verified by a human editor