‘Weak link’: French sovereign risk premium approaches 15-year high

A gauge of French government-bond risk breached a key level on Tuesday, underscoring the challenges facing the government as it tries to reduce the fiscal deficit while grappling with cost-of-living protests, Bloomberg reports.

The extra yield investors demand to hold 10-year French government bonds, known as Obligations Assimilables du Trésor (OATs), over safer German sovereign debt reached 154 basis points, the widest spread since October 2, Bloomberg notes. Earlier this month, the spread peaked at 159 basis points, its highest level since November 2011, as mounting political and fiscal pressures prompted many investors to sell their holdings of French sovereigns. The 10-year OAT fell on Tuesday, with its yield rising back toward 5%, its highest in more than 24 years, Reuters notes. The 10-year German Bund, by contrast, gained in price, with its yield falling 2 basis points to 3.44%.

Meanwhile, France’s benchmark CAC 40 stock index was down 0.8% on Tuesday. The euro strengthened slightly as unrest in France eased overnight, CNBC notes. The single currency strengthened 0.2% to $1.1231 in the session after hitting its lowest level since May 2025 last week at $1.1113.

“Bond markets now have much more choice over who they allocate to and if you don’t trust the government or company or sector that you’re lending to, then you’re going to just charge them a higher price,” reckons Karen Ward, chief market strategist for EMEA (Europe, the Middle East, and Africa) at JPMorgan Asset Management.

For BlackRock Investment Institute, the selloff in French government bonds is a reminder that intensifying competition for capital is putting borrowers under greater scrutiny, particularly when many markets offer high yields, Bloomberg writes. Bonds worldwide have come under pressure, but France has emerged as a weak link. The BlackRock strategists see the possibility of further volatility in bond markets, the Wall Street Journal adds. However, they describe the current situation as “materially different” from the 2011-2012 eurozone debt crisis. “France’s government debt has surged from roughly 89% of gross domestic product in 2011 to around 119% today, while the euro area’s aggregate debt ratio is now back at its 2011 level of around 89%,” BlackRock Investment Institute stated in a note.

“The public unrest certainly does not support OAT sentiment, and the last few days underscore how difficult it will be for any French government to strike a balance between the pressure from the markets (calling for more austerity) and the pressure in the streets (calling for more spending),” Commerzbank rates strategist Christoph Rieger said, as quoted by the Journal. He sees signs of a global debt crisis, rather than a purely French one, in the latest market moves.

Cost-of-living protests swept across France over the weekend, descending into looting and arson in some cities. However, demonstrations largely subsided early this week after authorities put in place tougher security measures like curfews in parts of several cities.

Still, a debt burden exceeding the country’s GDP and one of the largest budget deficits in the euro zone mean the French government cannot simply increase spending to appease voters, Bloomberg notes. The unrest also comes at a moment of peak political and financial tension, just six months before the election to choose President Emmanuel Macron’s successor, Bloomberg adds.