France's 10-year bond yield is holding near its highest level since 2002 as investors weigh the country's record debt load against a proposed deficit-reduction plan. The sell-off has slowed from earlier in the week, but the pressure has already spread into Italian and Greek sovereign debt, while German Bunds stay anchored as the region's safe haven.
The sell-off across European government bonds eased on Friday, but France's 10-year OAT yield held near 4.897%, close to its highest level since 2002. Investors are still weighing long-term fiscal risk in Paris against tight central bank liquidity across the bloc.
At the shorter end, the two-year French bond yield headed for its first weekly decline in nine, on course to snap its longest run of weekly gains since 2022. The French fiscal crisis has continued to spill over into non-core European debt markets through the week.
Le Pen's deficit plan fails to reassure markets
Bonds had found brief relief earlier in the week after far-right leader Marine Le Pen unveiled a budget plan aimed at cutting France's public deficit to 3% of GDP by 2030 through €140 billion in net spending cuts. Trading desks, however, quickly treated the announcement with skepticism, given the fractured makeup of the French National Assembly ahead of the 2027 presidential election.
France's debt-to-GDP ratio sits near a record 120%, and its 2026 budget deficit is projected at 5.4%, far above the EU's 3% ceiling. As a result, investors continue to demand a wide spread over risk-free German Bunds. According to Investing.com, Bank of France Governor Emmanuel Moulin added that the country's economic situation was "serious," though he said Paris did not need backstops from the European Central Bank.
Peripheral yields climb, Germany holds steady
The pressure has spread beyond France. Italian 10-year BTP yields surged to their highest level since mid-2023 before settling near 4.95%, as international investors demanded a higher term premium for peripheral risk. Greece's 10-year yield similarly hovered near its late-2023 highs.
Germany's bonds, by contrast, stayed anchored as the bloc's safe haven. The 10-year German Bund yield held steady near 3.498%. The two-year yield consolidated near 3.055%. The gap reflects a growing consensus that the European Central Bank will hold a cautious, data-dependent stance as elevated yields and high energy prices tighten financial conditions across the bloc.
Source: Investing.com
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