The yield on the French ten-year bond nears 4%, its highest level since 2009, with the gap to Spain exceeding 30 basis points, a historic record.
French sovereign debt is experiencing its worst moment in over a decade. The French ten-year bond has reached a yield of 3.94%, very close to the psychological threshold of 4%, a level not seen since June 2009. At the same time, the difference with the Spanish bond has soared above 30 basis points, the largest gap ever recorded between the two countries.
This movement reflects the growing distrust of investors towards French debt, which has become the weak link in the eurozone. While the Spanish bond offers a yield of 3.6% and the Italian one at 3.93%, the French bond is trading at the same level as the Italian, an unusual fact for an economy considered central.
Political and fiscal instability punishes French bonds
The political turmoil in France, which has been ongoing since late 2024, has prevented the government from improving its fiscal profile. The lack of a credible budget consolidation plan weighs on French debt, which has been particularly hard hit by the recent escalation of tension in the Strait of Hormuz. According to data from the International Monetary Fund, the debt-to-GDP ratio of France could reach 120.5% by 2027, while in Spain, GDP is expected to surpass total debt.
This week, the French Ministry of Finance published a report with projections up to 2030 that paints a bleak picture: Emmanuel Macron's successor, who will leave office in 2027, will face a deficit of nearly 7% of GDP in 2030. To stabilize the debt, France would need to find €126 billion in the next four years.
The risk of capital outflows from Japan exacerbates the pressure
Bank of America warns of an additional factor that could hit French debt: Japan's strategy to curb the rise of its own bonds, which encourages Japanese pension funds to invest in local assets. This would lead to an outflow of $10.4 billion from French bonds, equivalent to 5% of the assets under management of those funds. "France is the market that could have the lowest yield in light of expected flow changes when facing increasing budget uncertainty," noted Shesuke Yamada from Bank of America.
Rating agencies have already taken action. Last year, several downgraded France's outlook while maintaining or improving those of peripheral countries like Spain. The next key date will be August 28, when Fitch updates its rating, followed by DBRS and Scope Ratings on September 18.
For investors, this situation offers a clear reading: Spanish debt has become a safe haven asset within the eurozone, with an unprecedented favourable spread compared to French debt. For those seeking yield with lower relative risk, the Spanish ten-year bond (3.6%) wins hands down against the French (3.94%) when considering the solvency and fiscal trajectory of each country.
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