The interest that investors demand in the secondary market for French 10-year sovereign bonds reached this Wednesday to temporarily exceed the threshold of 5% for the first time since 2002. This rise reflects the growing concern of the markets about the sustainability of France's public accounts, in a context of political and social tension following the disturbances of the weekend and awaiting the imminent pronouncement of Moody's on the rating of French debt.
During the session, the yield of the French ten-year bond reached an intraday high of 5.0023%, which represents the highest cost of financing for the French State since July 2002. This movement widened the spread against the German 10-year bond, the 'bund', to nearly 160 basis points, a level not seen since 2011, during the sovereign debt crisis in the eurozone.
In this context, Benjamin Schroeder, senior interest rate strategist at ING Research, pointed out on Tuesday that the recent protests in France intensify the fear that any future government will have serious difficulties in pushing through the necessary reforms to stabilize public finances, while the European Central Bank (ECB) "has its hands tied" by the pressure that energy prices continue to exert on inflation.
Regarding the process of approving the Budget for the next fiscal year, the analyst considered that the different political formations remain more focused on their positioning for the upcoming elections than on decisively addressing the fiscal challenge.
For its part, Morningstar DBRS warned that the protests recorded last weekend in France could further complicate the already complex fiscal consolidation efforts of the Government, raising the risk of political blockage and prolonging investors' doubts about the country's budgetary path.
"The most significant risk lies in the possibility that prolonged social tensions further limit policy formulation, complicate the approval of a budget for 2027 in line with the Government's fiscal objectives, and increase the risk that France fails to correct its fiscal imbalances," explained Mehdi Fadli yesterday, senior vice president and head of the Global Sovereign Ratings sector at Morningstar DBRS.