Business liveBusiness French bond sell-off ‘reminiscent of the euro crisis’ as Paris proposes cuts and tax rises – business live Rolling coverage of the latest economic and financial news LIVE Updated 2m ago Graeme Wearden Fri 2 Oct 2026 07.47 BSTFirst published on Fri 2 Oct 2026 07.38 BST Share Key events 1m ago Euro near 17-month low 9m ago France’s budget 'offers no quick relief for bond markets' 10m ago Introduction: French bond sell-off 'reminiscent of the euro crisis' The entrance of Bercy, the Ministry of Economy, Finance and Industrial, Energy and Digital Sovereignty, in Paris, France, yesterday.
Turmoil in the government bond market is reviving memories of the eurozone debt crisis 15 years ago – but this time France is in the firing line.
Concerns over Paris’s fiscal position is pushing its borrowing costs up, amid a global sell-off of sovereign debt.
This pushed the gap beween France and Germany’s borrowing costs, a key measure of investor concern, to its widest level since 2012.
Yesterday, the yield on French 10-year government bonds (or OATs) yields jumped to their highest level since 2002, before dipping back as the bond rout eased.
Investors are reluctant to eat their OATs due to political uncertainty, with presidential elections scheduled for 2027, and concerns over France’s public debt which has climbed to a record high.
Jim Reid, Deutsche Bank strategist, points out that yesterday the Franco-German 10 year spread (+13.9bps) saw its biggest daily jump since March 2020 at the height of the Covid turmoil.
Reid told clients this morning: Markets stumbled yesterday as we began Q4, with mounting signs of financial stress focused on Europe.
In fact, the daily moves were reminiscent of the Euro crisis in many respects, with sovereign contagion a big talking point.
Inflation fears are also pushing up bond yields – and at 10am we get the first reading on how fast prices rose across the eurozone in September.
If that doesn’t rock the market, then the latest US jobs report might, as pressure mounts on the US Federal Reserve to consider raising interest rates.
The agenda 9am BST: UN’s FAO Food Price Index 10am BST: Eurozone flash inflation reading for September 1.30pm BST: US non-farm payrolls employment report 3pm BST: US factory orders report for August Key events 1m ago Euro near 17-month low 9m ago France’s budget 'offers no quick relief for bond markets' 10m ago Introduction: French bond sell-off 'reminiscent of the euro crisis' The euro is trading close to the 17-month low hit yesterday, when the single currency fell by over 0.75% to as low as €1.1214.
Ipek Ozkardeskaya, senior analyst at Swissquote, says jitters about France are hurting the euro: The sharp weakening of appetite for French debt is a big issue for the broader euro area and the euro itself.
France is the euro area’s second-largest economy — we used to call it the ‘core’, along with Germany, back during the 2012 sovereign debt crisis!
So, if concerns spread, other heavily indebted members could also face higher borrowing costs, tightening financial conditions across the region.
For the euro, that means weaker growth prospects and a growing risk premium.
The EURUSD tanked to 1.1215 yesterday, as the market’s focus shifted from the central-bank convergence/divergence story towards the euro area sovereign debt story.
France’s government did try to cool the situation yesterday, by proposing a budget for next year including €43bn in cuts and tax rises.
Under the proposed plan, the tax burden would rise while spending growth would be slowed through slashing state spending, and capping increases to pensions and civil servant salaries.
Finance minister Roland Lescure explained it was important to put France back on track for deficit reduction.
But even with this plan, the French budget deficit would only fall to 5% of GDP next year.
Analysts at ING warn that this deficit would be “far too high” to prevent France’s national debt (already 119% of GDP) from rising higher.
In a note titled France’s budget offers no quick relief for bond markets, ING say: France’s fiscal package would prevent the deficit from reaching 6.5% of GDP next year, but it would not stabilise public debt.
With a difficult political process ahead, French bonds are likely to remain under pressure, while the threshold for ECB intervention remains high Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The agenda 9am BST: UN’s FAO Food Price Index 10am BST: Eurozone flash inflation reading for September 1.30pm BST: US non-farm payrolls employment report 3pm BST: US factory orders report for August Explore more on these topicsBusiness Business live Economics Stock markets FTSE Bonds Share Reuse this content Most viewed Most viewed
