French Borrowing Costs Hit a 24-Year High as Budget Standoff and Unrest Rattle Bond Markets

The benchmark 10-year yield briefly crossed 5% for the first time since 2002, as investors weigh a fractured parliament, a €54 billion savings plan and a weekend of violent protests.

France’s cost of borrowing reached its highest level in more than two decades on Wednesday, as investors grew more doubtful about the government’s ability to repair its finances amid political and social turmoil.

The yield on the benchmark 10-year government bond (OAT) touched 5.002% during the session, according to Reuters, before easing to just under 5%. It was the first time the yield had crossed that threshold since 2002. The premium investors demand over German 10-year Bunds, a key gauge of perceived risk, was around 157 basis points, the widest in about 15 years.

Prime Minister Sébastien Lecornu’s minority government is seeking about €54 billion in fiscal savings in its 2027 budget. The proposal includes a public-sector wage freeze and tax increases, while raising defence spending. Finance Minister Roland Lescure has said the plan is meant to put France back on a path to deficit reduction.

The government lacks a stable majority in the National Assembly, and past budget deadlocks have brought down French administrations. Speaking on RTL radio on Wednesday, Lescure said he was confident a budget would pass, telling listeners the government had “no choice” and had the tools to succeed. He pointed to Article 49.3 of the constitution, which lets a prime minister push a bill through without a parliamentary vote, and to budget decrees. He said these would be used if negotiations go off course.

Using those powers is legal but politically risky. In 2023, the use of 49.3 to pass pension reform triggered further protests and no-confidence votes.

The bond move came days after the country’s worst unrest in years. Protests over living costs and weakening public services turned violent over the weekend, with rioting and looting causing damage that officials estimate at hundreds of millions of euros. President Emmanuel Macron condemned the violence and promised an uncompromising response.

Earlier this month, student-led demonstrations over staffing shortages and poor school conditions closed hundreds of schools. The government has little room to increase education funding while pursuing deficit reduction.

Reuters also pointed to uncertainty ahead of next year’s presidential election as a factor weighing on French markets. Global yields have risen this year as higher energy prices pushed central banks toward rate increases, but France has seen its costs climb faster than most peers.

Investors will watch whether the budget survives parliament without emergency powers, whether the protests continue, and how credit rating agencies respond. France’s public debt stands at about 119% of GDP.

A single day above 5% does not mean a debt crisis. But it shows that the political cost of fiscal adjustment, and the market cost of failing to deliver it, are now converging.

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