French Bond Yield Hits 5.11% Amid Budget Pressures Ahead of Moody's Review
Key Facts
The yield on French 10-year government bonds rose to 5.11% on Thursday, October 22, as a weak government faced pressure while trying to push its budget through parliament and reduce its high deficit, according to Reuters. The yield rose 11.5 basis points during the session, with pressure on the French debt market persisting. It had touched 5.1415% during trading before reaching the level cited in the agency's report. This was the highest yield since July 2002, according to Reuters, as the government struggles to repair public finances. The yield premium on French bonds over their German counterparts reached 173.58 basis points during Thursday's session, amid difficulties passing the budget, continuing protests and political uncertainty.
The French government is seeking to reduce the deficit from 5.4% of gross domestic product in 2026, according to a Reuters report published in September on budget problems and bond market pressures. The plan targets a reduction to 5% of GDP in 2027 as part of government efforts to contain the high deficit. To achieve this, the government is proposing spending cuts of 54 billion euros in next year's budget, according to the same report. The plan requires parliamentary passage of the budget, a task the weak government is struggling with, according to Reuters' account of the state of public finances. Against this backdrop, French public debt stood at 119% of GDP at the end of June, according to figures from the French statistics agency cited by the Associated Press.
On the political front, French President Emmanuel Macron described foreign leaders' comments on unrest in his country as "as unacceptable as they are stupid," according to Associated Press coverage on Wednesday. He confirmed that U.S. President Donald Trump was among those targeted by his criticism when a journalist asked about him by name. Macron answered "among others," broadening his criticism to include other foreign leaders. The French president accused foreign actors of manipulating information following looting in Paris and other French cities, according to the agency. School students' complaints include underfunding, deteriorating facilities and staff shortages, particularly in lower-income neighborhoods, according to the Associated Press. In the capital, authorities decided to ban Thursday's planned protest, citing concerns over public safety and the protection of property.
In the domestic economy, a survey by France's National Institute of Statistics and Economic Studies showed an improvement in the composite business climate indicator in October, with industry and employment diverging. France's composite indicator stood at 97 points, compared with 96 points in September, according to the institute's statement. The improvement in the manufacturing business climate was more pronounced, with its indicator rising to 105 points in October from 101 points the previous month. By contrast, the employment climate indicator fell to 95 points in October, according to results published by the same institute. That was down from 98 points in September, with the weaker employment climate offsetting improvements in both the composite indicator and manufacturing.
These developments come amid expectations of slower French economic growth this year, according to Bank of France estimates cited by Reuters in a report published in early October. The bank expects growth of 0.4% in 2026, compared with 0.9% in 2025. In the euro zone, the Centre for European Economic Research's economic expectations indicator fell to positive 18.5 points in October. That represented a decline of 7.3 points from the previous month, according to the centre's statement on weakening economic expectations. The next milestone for French sovereign debt is Moody's review scheduled for October 23, according to Reuters. The review covers France's Aa3 sovereign rating, with the agency maintaining a negative outlook on the country.