French OAT Yields Climb on Fiscal Concerns

France’s 10-year OAT yield climbed above 4.85%, approaching the more than two-decade high above 5% reached late last week, as fiscal concerns persisted and oil prices returned to focus. French borrowing costs have risen amid elevated energy prices, inflation and rate expectations, while French debt has been hit particularly hard by concerns over the government’s ability to rein in spending ahead of the 2027 presidential election. Paris’ 2027 budget plan proposes unpopular spending cuts aimed at reducing the deficit to 5% of GDP next year, but a lack of credibility and a divided parliament could make the target difficult to achieve. Meanwhile, Brent crude rose as Iran intensified attacks on shipping in the Strait of Hormuz, reinforcing expectations for further rate hikes from major central banks. The ECB is now seen hiking twice more by March 2027, while swaps price around 75 basis points of tightening by the end of next year.

France’s 10Y OAT yield fell to 4.75%, retreating from the more than two-decade high above 5% reached late last week. The spread over German 10-year yields also narrowed as investors reassessed whether the recent surge in France’s risk premium had been too sharp and rapid. French borrowing costs have risen sharply in recent weeks, with the yield gap over Germany reaching its widest level since the 2011 Eurozone debt crisis amid concerns over France’s fiscal position ahead of next year’s presidential election. France is set to formally submit its 2027 budget today, while far-right presidential candidate Marine Le Pen is expected to outline plans to cut government spending by €25 billion a year. Elsewhere, bond-market turmoil has prompted investors to scale back expectations for further ECB rate hikes. Markets now price an 80% chance of another hike by year-end, while ECB Chief Economist Philip Lane said higher borrowing costs could curb demand and reduce the need for further tightening.

France’s 10-year OAT yield climbed to 4.92%, its highest level since July 2002, as a broader global bond selloff intensified concerns over the country’s fiscal and political outlook. The yield spread over equivalent German Bunds widened to 152 basis points, the largest premium since 2011, reflecting growing investor concern about France’s rising debt burden and limited progress on deficit reduction. The government aims to bring the budget deficit down to 5%, but deteriorating public finances have made that target increasingly difficult to achieve. Political tensions remain elevated, with student protests spreading across France and up to 500 schools facing partial or full closures. More than 5,000 people have been arrested since the protests began, adding to pressure on the government. Prime Minister Sébastien Lecornu pledged measures to address concerns over education and public services. Elsewhere, Spanish PM Sánchez called a snap election after Congress rejected housing measures.