French bond risk rises to one percentage point amid budget concerns

The spread between French 10-year government bonds and their German equivalents surged past 100 basis points on September 18, reaching 101 to 104 basis points. That’s the widest gap since the eurozone sovereign debt crisis of 2012, and it tells a simple story: investors are losing confidence in France’s ability to get its fiscal house in order.

To put a basis point in plain terms, it’s one hundredth of a percentage point. So 100 basis points means France now pays a full percentage point more than Germany to borrow money for a decade. For one of Europe’s largest economies, that’s a meaningful penalty.

The numbers behind the nervousness

France’s budget deficit is projected to hit 5.4% of GDP in 2026. The EU’s official ceiling sits at 3%. French deficits have remained above 5% of GDP consistently since 2024. The country’s debt-to-GDP ratio now stands around 117.5% to 118%. Interest payments alone are projected to exceed €65 billion this year, making debt servicing one of the largest single items in the national budget. With French 10-year yields approaching 4.5%, levels not seen since 2008, the cost of rolling over existing debt keeps climbing.

Earlier in 2026, the OAT-Bund spread hovered around 60 basis points. Before the 2024 parliamentary elections, it sat at roughly 50. The French government announced €54 billion in planned spending cuts for 2027. The government’s stated objective is to bring the deficit down to approximately 5% of GDP next year.

Political uncertainty adds fuel

France’s political landscape heading into the 2027 presidential elections is adding uncertainty that bond markets hate. Marine Le Pen and Jean-Luc Mélenchon, representing the populist right and hard left respectively, are both potential frontrunners. French Finance Minister Roland Lescure attributed the widening spread to ongoing budgetary issues.

What the credit markets are saying

Five-year credit default swaps on French debt rose to 41.5 basis points, their highest level since April 2025. CDS contracts function as insurance against a borrower defaulting. Société Générale, one of France’s largest banks, has warned that the spread could widen further, estimating a potential increase to 120 basis points if conditions deteriorate.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.