France’s 10-year government bond yields surged past 4.13% to reach their highest levels since 2008, driven by mounting public debt, an ideological stalemate in the National Assembly, and an impending budget battle ahead of the 2027 presidential election. Borrowing costs have pushed above Italy’s, putting severe pressure on domestic lenders.
Political instability and chronic fiscal strain have pushed France into an acute financial test as the European Union’s second-largest economy struggles to control its budget deficit. With borrowing costs near financial-crisis-era highs as another difficult budget battle looms, investors are scrutinizing Paris for clear signs of fiscal reform. Successive prime ministers have faced ouster over failed spending cuts and tax increases, leaving the nation’s financial trajectory increasingly vulnerable to domestic deadlock and global market shocks.
Soaring Borrowing Costs and OAT Market Stress
French government borrowing costs have climbed dramatically over the past year, exacerbated by international pressures including the U.S.-Iran war’s impact on borrowing costs worldwide. Yields on 10-year government bonds hit their highest point since 2008 last week, climbing above 4.13% and holding near 4.1% by the end of the week. This surge has given France some of the highest government borrowing costs in the G7.
At the same time, the premium investors demand to hold French 10-year bonds over triple-A rated German debt has widened for three straight months, hitting the highest since late 2024 at around 88 basis points. Kevin Thozet of French asset manager Carmignac, which manages roughly €44 billion, noted the direction of the market.
The strain has directly impacted major financial institutions. Shares in BNP Paribas, Credit Agricole, and Societe Generale fell 3.3% to 4.3%, ranking among the weakest performers on the CAC 40 blue-chip index as market anxiety over government debt spilled over onto bank balance sheets.
An Ideological Stalemate and the 2027 Budget Battle
The fiscal crisis unfolds against a backdrop of deep political fragmentation. The French National Assembly lacks a working majority, a dynamic that has already toppled two prime ministers over the budget. Prime Minister Sebastien Lecornu, appointed in 2025 as the fifth person to hold the role in just two years, resigned just 27 days into his tenure before being reappointed days later.
Lecornu has urged lawmakers to pass a 2027 budget before the election, warning parliament not to add budgetary uncertainty to all the others.
He has promised “big savings measures” when the budget bill reaches lawmakers in early October. Meanwhile, Finance Minister Roland Lescure has floated freezing part of France’s pension spending next year to generate savings.
Despite these plans, market participants remain skeptical. Théophile Legrand, a rates strategist at Natixis CIB, noted that his team views French obligations as pre-stressed. What could delay a recovery is not only domestic politics, but also the broader macro backdrop,
Legrand said.
Mounting Deficits and European Union Limits
France has repeatedly missed European Union fiscal targets, breaching reference values that set government deficits at 3% of GDP and debt at 60% of GDP. Last year, France’s deficit reached 5.1% of GDP, while the debt-to-GDP ratio surpassed 115%. Under the EU’s excessive deficit procedure, the Council has recommended that Paris end its excessive deficit by 2029.
The International Monetary Fund projected in July that France’s gross government debt would reach about 118.5% of GDP in 2026 and exceed 120% in 2027, remaining above that threshold through 2030. Economic growth has stalled alongside these mounting obligations, with the economy contracting 0.2% quarter-on-quarter in the first three months of the year before stagnating in the second quarter.
John Stopford, head of multi-asset income at Ninety One, pointed out that while swelling deficits are a global post-pandemic issue, France “stands out” among developed nations.
“It’s not just a French problem, but you could argue that in many ways France is one of the poster child [countries]. So I don’t think it’s unique to France [but] France’s public finances have been going in the wrong direction.”
John Stopford, Ninety One
The Looming 2027 Presidential Election
Uncertainty surrounding the upcoming presidential election, scheduled for April 18 and May 2, adds another layer of volatility for investors trying to price French debt. A recent Harris Toluna poll indicated that four out of five potential scenarios would result in a runoff between hard-left leader Jean-Luc Melenchon and far-right veteran Marine Le Pen, with Le Pen winning comfortably against all rivals.
During a candidate debate, Le Pen stated that the government must drastically cut its spending,
expressing deep concern over Paris’s debt trajectory. However, financial analysts remain unconvinced that political shifts will result in genuine fiscal consolidation. Stopford noted that markets harbor doubts about future political appetite for reform.
“Clearly we may get a change of regime or policy priorities post May next year, but people doubt that there’s much appetite for material fiscal consolidation. So yes, I think we might be building up to a crisis. I’m just not sure it’s today.”
John Stopford, Ninety One
With credit rating agencies preparing to update their sovereign assessments—beginning with Fitch, which downgraded France to A+ a year ago—the immediate focus shifts to the formal submission of the 2027 budget plans to parliament in early October.
