Bond markets reprice French debt

French government bonds remain under pressure as investors demand more return to hold them. Bloomberg reported that European bonds stabilized after a week of sharp swings, with falling oil prices bringing some relief, but investors remain cautious. Investors are demanding the most compensation to own French bonds over Italian ones since the euro was founded, and hedge funds are likely to use any rally to add to short positions. The average interest rate on bonds France has issued this year rose from 3.14% in 2025 to 3.55%, while the 10-year bond has approached 5%, a level not seen in almost a quarter century, according to 20 minutos. Demand at medium and long-term issues had still exceeded the amount offered by 2.5 times until September, according to the Agence France Trésor.

Debt and deficit against the UK

The Guardian puts French debt at 115.6% of GDP in 2025, with a budget deficit of 5.1%, compared with 94.3% and 4.3% for the United Kingdom. The French deficit is set to rise to 5.4% this year, and Roland Lescure, France's counterpart to UK chancellor John Healey, has promised to follow suit on deficit reduction but has yet to say how. Healey is on course to reduce the UK budget deficit this year and in 2027. Investors are concerned that the French government has failed to bring spending under control and end a long period of 'fiscal incontinence', and markets are unnerved by similar trends in the UK, the US and more recently Italy. The Guardian describes France as the biggest worry, hemmed in by debts across the public and private sectors.

Who buys French debt

France must find buyers for 340 billion in debt in 2027, and Allianz Research says the market's capacity to absorb large French bond trades has fallen more than 50% from usual levels. Foreign banks and other financial investors hold about 36% of French government bonds, according to Allianz, and Japanese investors hold roughly 137 billion, close to 5% of the market. The fear is that some of that money could return to Japan if investments there become more attractive. The Banque de France is reducing its holdings as bonds bought during ECB emergency programmes mature, so Paris needs other buyers. In 2027 France must raise 28 billion more than this year, and much of it will refinance older debt issued when rates were far lower.

Frogs, ratings and the Greek comparison

20 minutos reports a new mocking acronym, 'Frogs' (grenouilles in English), which echoes the 'Pigs' label for southern European countries in the 2011-2012 crisis. Lilia Peytavin, an analyst at JP Morgan AM, says countries with the most deteriorated public finances, France among them, are the most penalized as rates rise amid an oil price surge. Moody's rating decision is expected on 23 October, and Banque de France governor Emmanuel Moulin warned in the Financial Times this week that France risks being 'strangled by interest rates'. Several CAC 40 companies, including LVMH and TotalEnergies, have recently borrowed at lower rates than the French state. On whether this marks the start of a Greek-style scenario, Nicolas Forest, investment director at Candriam in Luxembourg, said:

We are far from that. France does not have an immediate financing problem, and only 14% of the debt matures in 2027.

Protests, business and political pressure

Student protests have returned to French streets, eight years after rising fuel prices brought the gilets jaunes to the streets and prompted the first big crisis of Emmanuel Macron's time in office. Macron is contemplating his exit next year. A Medef survey, cited by the Guardian, found 82% of firms pessimistic about the impact of the next government's economic policy, and 66% said their business would become vulnerable or even go bankrupt if policy remained deadlocked for the next five years. Antonio Fatas, a professor of economics at Insead, says the political and economic situation has pushed France to the edge of a financial collapse.

If I look at the political situation, I am panicking. That's because too many political parties are saying let France burn.

Warnings from economists and central bankers

Paul Krugman, the Nobel Prize-winning economist, wrote in a Substack post dated 8 October that France's deteriorating public finances put it on an unsustainable path and risk unleashing a debt crisis across the euro area. He wrote:

France's current situation is really worrisome.

One of Germany's top central bankers called the latest bond selloff a "clear warning sign" that investors are getting nervous about governments' efforts to rein in debt, and pointed to the US alongside France. Le Monde argues that the storm on global bond markets owes much to inconsistent US policy, saying Donald Trump has challenged traditional alliances and destabilised the trade order.