France bond risk gauge hits 14-year high as budget fears mount
The French-German 10-year yield spread reached 105 basis points as deficit and political concerns weighed on bonds.
France’s bond risk gauge rose above one percentage point for the first time in 14 years, reflecting investor concern over the country’s large budget deficit and political uncertainty, Bloomberg reported.
The spread between French 10-year bond yields and their German counterparts reached 105 basis points on Friday, its biggest daily jump in more than two years. The move came during a global bond selloff, but France’s underperformance reflected longer-standing concerns about its finances.
The French government said Thursday it would miss its deficit target by a wide margin and that politically difficult spending cuts were needed to narrow the gap in 2027. Finance Minister Roland Lescure said next year’s deficit goal was “both ambitious and realistic.”
France’s 10-year yield rose 12 basis points on Friday to 4.57%, its highest level since 2008. The bond also carried a 100-basis-point premium over swap peers, the most since 2012.
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Societe Generale strategists said a 120-basis-point spread was within reach if political uncertainty increased. Macro Hive’s head of rates strategy, Antonio Del Favero, warned the spread could reach 130 basis points if opposition parties toppled the government during budget negotiations.
The government said weaker growth and higher interest costs would push the budget gap to 5.4% of economic output this year, compared with a 5% target. Lescure said France was aware of its deficits, while energy costs and European Central Bank rate hikes continued to weigh on borrowing costs.