French debt risk premium reaches euro zone sovereign crisis levels
TLT•France’s 10-year yield rose to 5.11%, and its premium over German Bunds widened to 173.58 basis points, the highest since November 2011. Markets priced in three additional European Central Bank rate hikes by late 2027.
1. French borrowing costs rise
France’s 10-year government bond yield rose 11.5 basis points to 5.11%, after reaching 5.1415%, its highest level since July 2002. The premium over German Bunds widened to 173.58 basis points, its widest since November 2011, as concerns about France’s public finances, political uncertainty and difficulty passing a budget weighed on sentiment.
2. Political concerns persist
The bond selloff continued despite data showing French industrial sentiment improved in October. Citi economist Giada Giani said re-emerging euroscepticism could constrain a European response to crises. French ministers also promised a reinforced security operation, including troops alongside additional police, for planned protests on Saturday.
3. Yields diverge across Europe
Germany’s 10-year yield fell 4 basis points to 3.38%, supported by safe-haven demand. Yield spreads over Bunds also widened for Belgium, Italy, Spain and Greece. Money markets priced the ECB deposit rate at 3.26% by late 2027, up from 2.50% currently, implying three additional rate hikes.
