French bond spread widens again as investors flee to Bunds

France has become the main focus of a global government bond selloff. Its borrowing costs have climbed to their highest level since 2002, and investors increasingly treat its debt less like that of a core eurozone country and more like the periphery's. French 10-year yields jumped 70 basis points in September alone. The gap over German Bunds came close to 160 basis points last week, the widest since 2012, and began widening again on Wednesday after easing earlier in the week.reuters

Investors are worried about France's budget deficit, a record €340 billion of planned bond sales in 2027 and next year's presidential election. The pressure has reached beyond France: the euro fell to its weakest level against the dollar since May 2025.cnn+1

Riskier Than Italy and Greece

French borrowing costs now exceed those of Greece and Italy. On Tuesday afternoon the benchmark 10-year yield was about 4.77% after easing slightly, according to CNBC. Mitch Reznick of Federated Hermes said the OAT-Bund spread had moved above 140 basis points "as attention turns to France's high debt, large budget deficits, increased bond supply and political uncertainty ahead of the presidential election".cnbc

UBS CEO Sergio Ermotti told CNBC that France "needs to go through hard measures… incremental small changes are not going to be enough to resolve the big debt pile." He compared the situation to the crises in Spain, Italy, Greece and Portugal over the past 15 years. Japan's Sumitomo Mitsui DS Asset Management said it had sold French bonds in favor of German and Japanese debt, which it called a "flight-to-quality move".reuters+1

The International Monetary Fund wrote in its July review of France that the country should pursue "expenditure-led fiscal consolidation" to bring the deficit below 3% of GDP by 2029. France said in September that its deficit would overshoot the government's 5% target.imf+1

Spillover Risks

"The potential for contagion into other countries and the Eurozone at large is very large," Angel Talavera of Oxford Economics told CNN. Italy's spread over Germany widened to 130 basis points last week from 80 a month earlier. Greek spreads reached a two-year high, and Belgian yields rose 49 basis points in September. Germany, the Netherlands and Switzerland, by contrast, gained from investors seeking safety.cnn+1

"We've seen bond vigilantes come out in force," said Kristina Hooper of Man Group. Spreads are still far below the peaks of the 2012 debt crisis, when Italy's topped 500 basis points.reuters

Politics Clouds the Outlook

The government has proposed spending cuts and tax increases. Andrew Kenningham of Capital Economics said investors fear these could be watered down ahead of the election, and warned of "a big risk that spreads rise a lot further". Far-right candidate Marine Le Pen promised large spending cuts and warned that France risks defaulting. Reznick said the European Central Bank is unlikely to step in for now, but "its language could start to change" if spreads keep widening.cnn+1