As French bonds risk premium soars, markets sense central bank intervention could be closer
TLT•France’s 10-year bond yield rose near 5%, its highest since 2002, while the premium over German bonds topped 150 basis points and was set for its biggest weekly jump since at least 2007. The ECB is not expected to intervene, though analysts say heavy selling raises pressure on the central bank.
1. French bond selloff
France’s 10-year bond yield climbed near 5%, its highest level since 2002, as the premium investors demand over German debt rose above 150 basis points. The spread was set for a weekly increase of at least 40 basis points, its biggest since at least 2007.
2. ECB intervention uncertain
The ECB is not expected to use its bond-buying tool to contain pressure on France, but analysts say this week’s heavy selling, which has also rippled into Italian bonds, raises pressure on the central bank. The ECB’s Transmission Protection Instrument allows it to buy an unlimited number of bonds from a euro zone country facing an “unwarranted, disorderly” tightening of financing conditions.
3. Pressure on French debt
Elevated energy prices, rising inflation and higher interest-rate expectations have hurt sovereign bonds worldwide. French debt has been hit especially hard by concerns about the government’s ability to reduce spending and improve its finances ahead of the 2027 presidential election; France presented its 2027 budget bill on Thursday, seeking unpopular belt-tightening measures to lower its deficit.
