French 10-year bond yields reach 4.80% as Lecornu warns of crisis before budget

Surging borrowing costs and spread expansion

French Prime Minister Sébastien Lecornu warned of financial crisis risks on Wednesday as French 10-year sovereign bond yields reached 4.80% on Tuesday afternoon, marking their highest level since 2008. The yield stood at 3.5% one year ago, before climbing over recent months as global bond markets tightened amid conflict in the Middle East and energy supply strains. On Wednesday morning, the 10-year rate eased slightly to 4.78% in early trading. The yield spread between French debt and benchmark German sovereign bonds approached 1.20 percentage points, the widest difference recorded since 2012. Lecornu stated on X that this borrowing alert had passed almost unnoticed in the public debate, noting that national realities were catching up with the country.

More interest to pay means fewer resources for the country's priorities.

Fiscal deficit and the 2027 recovery budget

The rise in financing costs coincides with the presentation of the 2027 draft budget to the Council of Ministers on Thursday. France's public deficit reached 5.4% of gross domestic product in 2026, exceeding the government's target of 5.0%, while total public debt continues to expand toward record levels. To stabilize public finances, Lecornu presented the broad outlines of a recovery budget in mid-September containing 54 billion euros in consolidation measures. Calculations published by financial media indicate that annual debt servicing costs could mechanically reach between 150 billion and 180 billion euros by 2032 if borrowing costs remain elevated. With the minority government facing potential no-confidence motions and a looming presidential election campaign, a standard parliamentary vote on the budget remains uncertain.

Reality is catching up with us.

Inflation acceleration and market reactions

Macroeconomic pressure broadened across European markets on Wednesday as regional inflation accelerated alongside household consumption declines. French annual consumer price inflation reached 3.0% in September, increasing from 2.4% in August and registering its highest rate since February 2024. Inflation in neighboring economies also climbed, reaching 4.2% year-on-year in Italy and 4.9% in Spain. In Paris, the CAC 40 index dropped 0.39% to 8,004.85 points by 11:25 local time after early gains, following a 0.53% loss to 8,035.87 points in the prior session. Equity selling affected advertising group Publicis, which dropped 2.09% to 93.78 euros, and software company Dassault Systèmes, which lost 2.08% to 20.21 euros, while beverage producer Pernod-Ricard rose 1.70% to 61.02 euros.

Energy prices and monetary policy outlook

Energy markets saw Brent crude climb 1.02% to 103.64 dollars per barrel, while West Texas Intermediate gained 0.95% to 90.23 dollars per barrel on Wednesday. Rising energy costs and persistent inflation across major European economies have intensified expectations regarding European Central Bank policy. Consorsbank market analyst Jochen Stanzl stated that higher inflation readings could rapidly lift expectations of another interest rate hike by the European Central Bank. Lecornu urged political opposition parties in the National Assembly not to compound economic headwinds, confirming that the executive branch remains open to negotiating compromises to adopt the financial package.

Let us not add instability to these difficulties.