French borrowing costs overtake US amid budget turmoil
French borrowing costs rose on Thursday, surpassing those of the United States for the first time since 2013, as investors reacted to political instability and a struggling federal budget.
The yield on the French 10-year bond, known as an Oat, increased by nine basis points to 5.089% in early trading, crossing the 5% threshold for the first time since 2002. This move lifted France’s borrowing costs over those of US Treasury bonds, marking a significant shift in the European debt market.
The widening gap between French and German 10-year borrowing costs, a key risk premium metric, reached its highest level in almost 15 years. This volatility is driven by a struggling government attempting to pass a federal budget for the next year amid widespread unrest.
The turmoil follows violent protests that turned violent last weekend, with tens of thousands of people marching peacefully before different groups clashed with police in cities including Paris, Bordeaux, Nice, and Marseille. Public buildings were attacked and thousands of shops were looted, with the interior ministry reporting nearly 2,400 arrests.
A parliamentary gridlock has blocked President Emmanuel Macron’s plans to increase the state pension age from 62 to 64 and a series of spending measures. The country’s budget deficit was 5.1% of GDP in 2025, and its debt pile stood at 115.6% of GDP, putting it under acute pressure from higher inflation triggered by the war in Iran.
Jim Reid, a market strategist at Deutsche Bank, noted that the sell-off in French government bonds was starting to ripple out to other countries. He reported that the Italian 10-year spread over German bonds widened 3.8 basis points to 116 basis points, while Spain’s widened 3.1 basis points to 66 basis points, marking its widest level since June 2025.
Carsten Brzeski of ING said rising yields had reinforced the European Central Bank’s restrictive monetary policy stance before its interest rate decision next week. The bank last raised its key interest rate to 2.5% in September and is very likely to stay on hold next week, delaying any next rate hike decision to December.
Brzeski added that any solution to the current French fiscal woes could bring some relief to bond markets and allow the ECB to continue hiking rates. Without any solution, bond markets have taken over the ECB’s role, making rate hikes less likely.
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