France's 10-year government bond yield topped 5% on Wednesday. This is the first time it has crossed this level since 2002. The yield increased by more than 8 basis points to 5% in morning trading. Investor concerns over the government's failure to pass a budget and ongoing civil unrest drove this rise. The yield later dropped slightly to 4.99%. The rise in borrowing costs shows growing worry among international lenders. Some lenders are pulling back from lending to France due to fiscal concerns.
Budget Stalemate
The French government has not finalized its budget for 2027. This budget includes proposed spending cuts of €43 billion ($48 billion). Prime Minister Sebastien Lecornu aims to reduce the budget deficit, which was 5.1% of GDP in 2025. However, he faces strong opposition in parliament. France's debt is now about 120% of GDP, far above the EU limit of 60%. The ongoing political deadlock has stalled reforms, including a controversial increase in the pension age from 62 to 64.
Civil Unrest
Recent protests, initially focused on education funding, have grown into wider demonstrations against rising living costs. Reports show these protests have led to violent clashes and significant damage to public property. The unrest has added to concerns about France's fiscal stability. The gap between French and German bond yields has widened to nearly 160 basis points. The situation is complicated by an upcoming decision from Moody's on France's sovereign credit rating. There are expectations of a downgrade that could raise borrowing costs further.
Related coverage: France Faces Bond Sell-Off Amid Protests and Violence.
The rise in bond yields is likely to increase borrowing costs for both businesses and households in France. This trend could put pressure on the French economy, especially as the government tries to implement spending cuts amid ongoing protests. Investors will closely watch the upcoming Moody's decision on France's credit rating. This decision could have major effects on future borrowing costs.
Based on reporting by: theguardian.com, euronews.com