It won't be easy for the French Prime Minister show a glass half full tomorrow when he presents the maneuver accompanied by one spread rose above 120 basis points: the French government bond risk indicator (OAT) has reached highest since 2012, almost doubled in the last four months, while the long-term financing costs they have risen to levels that were unseen from 2002.
“This level represents a alarm bell for the bond market this morning,” said Marie Jacot, CEO of Edmond de Rothschild Asset Management France, Bloomberg TV.
All bond markets in the world are affected by a toxic combination of deteriorating public finances, excess emissions and rising inflation while the war between the United States and Israel against Iran keeps energy costs high. But the France shows the greatest concerns and risks in Europe due to its uncontrolled finances. Furthermore, it Oat/Bund spread accelerated this morning after data showed a rising inflation higher than expected, which will put even more pressure on monetary policy makers in the country. European Central BankMarket participants are betting on a third interest rate hike by the end of the year, with the possibility of three more increases next year.
Prime Minister Lecornu is expected to present a comprehensive spending containment plan tomorrow.
Paris struggles to hold on public finances under control, while the economic growth slowed down sharply. The deficit is set to rise to around 5,4% of GDP in 2026, rather than declining slightly from the 5,1% projected for 2025, as the government had initially hoped, while a fragmented parliament resists austerity measures. The government has already revised downwards the growth forecasts for this year, bringing them to 0,5%, while the budget law for 2026 was based on a 0,9% expansion.
The French Prime Minister Sébastien Lecornu is expected to propose a tomorrow vast spending containment plan and deficit reductionThe budget bill will aim to reduce the deficit to 5% of GDP by 2027 thanks mainly to a €54 billion “effort” to contain spending, Lecornu said in an interview with Le Figaro"By freezing health insurance spending starting this summer, we have already begun to structurally cushion the shock, but we must continue on this path," Lecornu said, adding that he also plans to partially extend a tax on large companies that was initially introduced as a one-off measure in 2025. The new version would aim to generate revenues of 5 billion euros instead of 8 billion. If next year's budget law does not introduce changes to curb the increase in spending, the deficit could widen to 6,5% of GDP, Lecornu said. Le Figaro.
Meanwhile, yesterday evening the French agency for the management of the debt announced plans to sell in 2027 a total of 340 billion euros of medium- and long-term debt securities, net of buybacks, the highest figure ever, and up 10% from this year.
Investors are apprehensive ahead of the presidential elections next year, as opposition parties are reluctant to compromise with the outgoing administration of President Emmanuel Macron. According to a poll on voting intentions published earlier this week, far-right candidate Marine Le Pen and her far-left rival Jean-Luc Mélenchon are expected to advance to the second round.
The burden of yields weighs on everyone. The BTP/Bund spread hit 100 basis points yesterday.
France is certainly not alone in this movement. yield rise of government bonds, with the associated risks: Government bond yields are a benchmark for global markets: for investing in riskier stocks and for mortgages and loans to businesses.
This morning the yields of the US Treasury securities 10-year yields have stabilized, but remain close to their highest since 2007, at 5,23%, with the forecast to close the month with an increase of nearly 50 basis points, the largest in the last two years. Japan, the 10-year government bond yield is on track to surge by 42 basis points this quarter. In Europe, the yield on german bund has risen above 3,65% in recent days, the highest since June 2009. The BTP at 10 years old it has risen in recent days up to 4,65%, the highest since 2023The BTP/Bund spread widened to 100 basis points yesterday, the highest since May 2025, while this morning it stood at 99 basis points.
