“C’est fait”, announces Le Figaro. The interest rate on French government bonds exceeded (even if for a few seconds) the symbolic threshold of 5%. This is the highest level ever reached since the summer of 2002. Starting from the United States, the bond storm is also hitting hard in Europe where France is now seen as the most problematic country. Public debt has risen to 119% of GDP, but what worries investors most is the high level of deficit which is expected to stand at 5.4% of GDP in 2026, before falling to 5% in 2027.
In short, Paris continues to increase the amount of debt and markets remain very skeptical that the government in office will be able to reverse course. According to the Swiss bank UBP “there is little chance of a realistic fiscal consolidation before the presidential elections in May 2027”. The unrest that has broken out in recent weeks has added more fuel to the fire, making it even more difficult for the executive to adopt reforms that secure the accounts.
The spread with Bunds and BTPs
Meanwhile, next Friday Moody’s will have to decide whether to confirm the Aa3 rating or downgrade it. In the meantime, the spread against German bonds is widening and has risen to 158 points: 10-year Bunds pay interest of 3.41%, compared to 4.99% for French OATs and 4.6% for Italian BTPs. This means that issuing a 10-year Oat costs France 5% interest each year to be returned to investors. And there are no reasons to be optimistic on the horizon, at least in the short term. “The situation could get worse before it gets better” conclude the UBP analysts.