French Bond Yields at 2002 High as Fiscal Concerns Deepen

France’s 10-year OAT yield surged above 4.9%, reaching its highest level since July 2002, after posting its biggest quarterly increase in nearly four decades. The move came as the minority government unveiled its long-awaited plan to rein in the budget deficit, targeting a reduction to 5% of GDP next year from 5.4% this year. The plan has already drawn scrutiny from the country’s fiscal watchdog, which warned that the budget’s economic assumptions are “optimistic.” French borrowing costs have also risen sharply amid a global bond selloff, with the 10-year yield spread over Germany widening to 130 bps, the highest since 2012, reflecting growing concerns over debt sustainability. With the debt burden expected to exceed 120% of GDP next year and political uncertainty ahead of April’s elections, interest costs are set to climb. Meanwhile, Agence France Trésor plans a record €340 billion of borrowing to finance the deficit and refinance maturing debt.