French Bond Yields Surge as Political Crisis Deepens

French government borrowing costs have climbed to levels not seen in nearly 25 years, with the 10-year yield reaching 4.75% and the spread over German bunds widening to 1.59 percentage points, the highest since the 2012 eurozone crisis. The selloff reflects investor anxiety over France's record public debt and the government's struggle to pass a budget amid parliamentary opposition.

Nationwide student protests and public sector strikes have intensified pressure on public finances, with demonstrators demanding an estimated €10 billion in education spending. Radical left lawmaker Louis Boyard urged the government to "open the checkbook" during a heated National Assembly debate, highlighting the difficulty of meeting spending demands while markets demand fiscal discipline.

“You are incapable of understanding what young people want. To resolve all this, you're going to have to open the checkbook.”

The euro fell to a 17-month low of $1.1161 against the dollar before partially recovering to $1.1226, still marking a fifth consecutive weekly decline. Analysts at Macquarie warn that escalating social unrest could further widen French bond spreads, creating a feedback loop between political instability and market stress.

Marine Le Pen, the far-right presidential frontrunner for 2027, presented deficit-reduction proposals this week that markets initially viewed as encouraging compared to her rival's positions. However, former Finance Minister Michel Sapin cautioned that weak economic activity, the budget crisis, and election uncertainty combine to create a prolonged period of turbulence extending well beyond the current budget negotiations.