French Debt Risk Premium Hits 15-Year High Amid Fiscal and Political Concerns
Investor anxiety regarding France’s troubled public finances and persistent street protests drove the extra yield required to hold French government debt over secure German Bunds to a 15-year peak on Thursday, based on information from dailysabah.com.
French 10-Year Yields Reach July 2002 Highs Amid Fiscal Strain
France’s benchmark 10-year yield rose 6.5 basis points to 5.06% after earlier touching 5.1415%, marking its highest level since July 2002. Money.usnews.com reported that the benchmark yield rose slightly higher to 5.11% in related trading metrics. The spread over German Bunds expanded to 177.7 basis points according to dailysabah.com, while money.usnews.com cited the wider risk premium at 173.58 basis points. This marks the widest spread since November 2011 during the eurozone debt crisis.
French ministers promised a significantly expanded security operation for further planned protests, with troops expected to deploy alongside additional police forces. The selloff in French bonds stems from political uncertainty ahead of next year’s presidential election and difficulties in passing a budget.
Data showed an improvement in industrial sentiment in October. ING economist Charlotte de Montpellier noted that the rise in business confidence was a welcome surprise given concerns about the political and economic impact of ongoing social unrest.
European Central Bank Intervention Bar Remains High
Market tensions raised questions regarding potential intervention by the European Central Bank. Citi economist Giada Giani pointed out that Europe is better equipped today to deal with crises than it was 15 years ago, though re-emerging euroscepticism presents a distinct constraint.
Energy Price Hikes Drive Safe-Haven Demand for German Bunds
Borrowing costs climbed across the currency bloc as higher energy prices fueled expectations of tighter monetary policy, increasing pressure on highly indebted countries. Germany’s 10-year Bund yield fell 7 basis points to 3.34% on dailysabah.com, and down 4 basis points to 3.38% on money.usnews.com, supported by safe-haven demand.
Yield gaps over German Bunds widened across the wider eurozone:
- Belgium: Spread widened more than 10 basis points to 111.28 basis points, reaching its highest level since 2012.
- Italy: Spread rose 10.5 basis points to 123 basis points.
- Spain: Spread widened 6 to 7.5 basis points to reach between 70 and 71 basis points.
- Greece: Spread increased 8.5 basis points to reach between 102 and 106 basis points.
Germany’s two-year yield fell between 0.5 and 6 basis points to settle near 3.02% to 3.08%. European Central Bank chief Christine Lagarde noted late last month that a moderate policy response remained appropriate when markets were pricing in nearly four rate hikes by late 2027. Based on the latest figures from money markets, the ECB deposit rate is anticipated to land between 3.15% and 3.26% by the close of 2027, factoring in two quarter-point rate bumps alongside an 80% probability of a third.