At 80 basis units of the spread premium of its report bonds France against the state bonder Germany for the first time since April, reflecting investors’ growing concern about the country’s political prospects.
Borrowing costs for the French 10 -year bond increased to three basis points, reaching 3.53% on Wednesday (27.8.25). So it expanded the spread compared to Germany’s corresponding bonds. The gap between the two was just 65 base points two weeks ago, according to Bloomberg.
The French markets are at the center of attention by Prime Minister Francois Bayou’s decision on Monday to seek a vote of confidence in his government on September 8 – an attempt to force the parties to take a stand on his budget plan.
Spread’s move on Wednesday was less dramatic than observed earlier this week, while France’s CAC 40 showed signs of stabilization, up 0.3% after two days of fall.
Bayrou faces political reactions against Expenditure cuts of 44 billion euros and tax increases, which it considers vital to prevent the disaster for France’s public finances. A similar scenario last year caused a turmoil in French assets and eventually led to the removal of Bairo’s predecessor after just 90 days.
If the country’s political crisis worsens, the 10 -year bond performance difference against the German counterpart could be launched at 100 basis points for the first time since 2012according to Guillaume Rigeade, CARMIGNAC’s co-stable head.
“Financial consolidation is a national requirement,” said Geoff Yu, a macroeconomic strategic analyst for the EMEA region in Bank of New York Mellon. “We expect that French bonds will continue to perform poor performance,” he said.
He warned that accumulated positioning in French government bonds is a greater threat than during a similar episode of political risk in 2024, with the risk of accumulated outflows being “extremely high”.
Three credit ratings are also in the coming months. Fitch Ratings has planned to evaluate France on September 12 – just days after parliamentary vote – and could degrade the country’s credit rating to A+, a move that could prove to be a catalyst for further bond volatility.
The last period of political instability is also expected to endanger the emerging economic recovery as companies inhibit recruitment and investment. The government estimates that economic growth will reach 0.7% this year.