French bond yields climb as ECB rescue debate grows

France's borrowing costs kept rising on Monday, October 12. Pressure is building on Paris to pass a credible 2027 budget, and the debate over whether the European Central Bank should step in is getting louder. The yield on France's 10-year bond rose to about 4.91%, according to Trading Economics. That is close to the more than two-decade high of 5.03% reached earlier this month. French lawmakers are set to begin debating the budget's revenue measures this week.tradingeconomics

The euro has also suffered. On Monday it hovered near a 17-month low against the British pound, after falling about 1.7% over the previous two weeks. The gap between French and German 10-year yields was put at 137 basis points, the widest since the 2012 crisis. Earlier this month the euro also hit its lowest level against the dollar since May 2025, Reuters reported, after four straight weeks of losses.fxstreet+1

Ministers press Paris

Last week, EU officials urged France to present a credible budget and stick to the bloc's fiscal rules. At the October Eurogroup talks, eurozone finance ministers and ECB officials pressed Prime Minister Sébastien Lecornu's government to show it can get a budget through a divided parliament, EU Today reported. The government aims to cut the deficit to 5% of GDP in 2027. Whether parliament will approve large spending cuts ahead of next year's presidential election is still unclear. France expects to borrow about €340 billion in 2027. Its 2027 draft budget aims to save €54 billion, but public debt is still expected to rise to nearly 122% of GDP, France 24 reported.eutoday+3

Moulin: "The solution is here at home"

Bank of France Governor Emmanuel Moulin, who sits on the ECB's Governing Council, has rejected calls for help from Frankfurt. "I do not think that the European Central Bank needs to intervene as of now, given the current conditions," he told France Inter radio on October 7. "Today, there is no need to seek the solution in Frankfurt; the solution is here at home." He was responding to far-right leader Marine Le Pen, who wants talks with the ECB about lowering France's borrowing costs. Moulin said that is not the bank's job, because its mission is "fighting against inflation."reuters+1

Analysts say the ECB's main backstop for bond markets, the Transmission Protection Instrument, is unlikely to be used soon. France is under an EU procedure for breaching deficit rules. Commerzbank's Jörg Krämer says that does not automatically rule out support, but he expects the tool to be kept as a last resort. ING economists warned that stepping in too quickly "may be viewed unfavorably by other member states and interpreted as monetary financing of the debt of a country unwilling to follow the rules."global.morningstar

ING's Carsten Brzeski said wider French spreads alone will not be enough to trigger intervention: "widening spreads without clear fiscal consolidation efforts will not trigger TPI." In his view, the spread of stress to other eurozone bond markets would make a stronger case for action.global.morningstar