The French risk premium skyrockets to 127.15 basis points, a level not seen since 2012, while public debt reaches 119% of GDP and the Treasury plans to issue €340 billion in 2027.
The risk premium of France has climbed this Wednesday to 127.15 basis points, a level not recorded since 2012. In just nine months, the differential with the German bond has widened by nearly 80 points, according to eldebate.com, making financing more expensive for a country whose public debt already accounts for 119% of GDP.
The movement has surprised due to its speed. At the end of August, Barclays deemed it unlikely that the differential would exceed 100 points this year. A month later, it had already far surpassed that threshold, and the yield on the French ten-year bond was at its highest since 2008.
The French manager Ofi Invest AM, with nearly €200 billion in assets, had outlined three scenarios for French debt. The favourable scenario placed the premium between 65 and 80 points; the central scenario, between 80 and 100; and the most tense, between 120 and 150, associated with a deterioration of fiscal credibility, difficulties in passing credible budgets, possible rating downgrades, and tensions with European fiscal rules. The market has validated the worst of the forecasts.
“It does not represent a financing crisis. The market has become more demanding,” explains Christophe Herpet, investment director at Ofi Invest AM.
Herpet adds that investors are incorporating into the price of debt not only France's ability to continue financing itself but also the political credibility that underpins its fiscal trajectory.
The numbers explain the punishment. French debt closed the second quarter at €3.59 trillion, 119% of GDP, one of the highest records in its history. The Government expects to end 2026 with a deficit of 5.4% and aims to reduce it to 5% in 2027.
With that starting point, France will need to approach the markets robustly just as they demand higher yields. The France Trésor Agency plans to issue a record €340 billion in medium- and long-term debt in 2027, €30 billion more than this year, coinciding with a surge in maturities of bonds issued during the pandemic and the energy crisis.
The average weighted cost at which France has placed medium- and long-term debt in 2026 has risen to 3.55%, compared to 3.14% the previous year. The interest bill is expected to reach €62.6 billion this fiscal year and climb to €72.9 billion in 2027, according to estimates from the French Treasury.
This increase does not immediately translate to the entire debt but occurs as old bonds mature and are replaced by new ones. This lag gives France time, but it also turns the persistence of current yield levels into a burden for public accounts.
Ofi Invest warns that the deterioration may extend beyond the State. French banks had covered 85% of their financing needs through bonds by the end of June this year, which protects them in the short term. However, if the premium remains at these levels, their financing costs will rise, and their valuations will be affected. Companies would also not be spared if the capital costs continue to increase.
The next test will be the 2027 Budget. The government of Sébastien Lecornu intends to implement an adjustment of €54 billion by combining spending restraint and tax measures to try to redirect the accounts.
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