French borrowing costs top 5% for first time in 24 years amid unrest and budget deadlock
French borrowing costs rose above 5% for the first time in 24 years, as political unrest and the failure to pass a delayed budget unsettled markets in the eurozone's second largest economy. The 10-year OAT bond yield later eased to 4.99%.
French borrowing costs top 5% for first time in 24 years amid unrest and budget deadlock
Benchmark yield crosses 5%
French borrowing costs moved past the 5% mark in morning trading, a level not seen in 24 years, with the yield on the benchmark 10-year bond rising more than 8 basis points before falling back to 4.99%.
The move hit the obligation assimilables du Trésor, the French Treasury's long-term debt instrument, and came with France standing as the second largest economy in the eurozone.
Protests widen from schools to cost of living
The political concerns behind the market move trace back to September, when students demanded extra funds for schools plagued by mould and rats, teacher shortages and large classes. The protests then widened to take in the cost of living.
What began as calm demonstrations was frequently met with aggressive police tactics, and the confrontations sparked riots across many towns and cities. Louis Vuitton stores have been hit by looting, while protesters set fire to the town hall in Limoges.
Parliament gridlock blocks budget and pension reform
The deadlock in parliament dates to 2024, when President Emmanuel Macron called a snap election. Since then, no single party has held overall control, and the government has failed to agree a much-delayed budget.
The gridlock has stalled key parts of Macron's agenda:
- Plans to raise the pension age from 62 to 64
- Measures to reduce or redirect state spending
The fiscal picture has worsened alongside the paralysis. France's budget deficit stood at 5.1% of gross domestic product in 2025, while its debt pile reached 115.6% of GDP. Both figures are forecast to increase without remedial action.
Lenders pull back and the euro lags
International lenders have accused the government of becoming "fiscally incontinent", and some, notably Japanese fund managers, have withdrawn from lending to France.
The turmoil is also weighing on the euro. Matthew Ryan, head of market strategy at Ebury, said French woes were dragging down the currency's value against other major counterparts.
The euro continues to lag most major currencies as the political risk premium in France looks unlikely to fade any time soon.
Ryan added that it remains unclear whether the 2027 budget will clear parliament, and warned that concessions made to win passage may leave the deficit problem insufficiently addressed.
