French bond yields reach highest level since 2002 — CNBC
In France, yields on benchmark 10-year government bonds, known as OATs, rose to their highest level since 2002 amid unrest and investor concerns over the country’s budget policy. On Thursday, they added 11 basis points, while the spread between French and German 10-year bond yields became the widest since November 2011, CNBC reports.
Rating agency Moody’s on Friday affirmed France’s Aa3 rating, which it considers high investment grade, but maintained a negative outlook. The agency explained this by the growing risk that the country’s political fragmentation will continue to hamper the functioning of legislative institutions. Moody’s said it could restore a stable outlook if French institutions are able to reduce the budget deficit.
Budget risks
The French government seeks to reduce the budget deficit to 5% of GDP in 2027 from a projected 5.4% in 2026. The National Assembly is due to resume consideration of tax measures within the budget on October 27, but opposition lawmakers oppose these plans.
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Alain Durré, head of EMEA economics research at Natixis CIB, said the government is determined to prevent a sharp increase in borrowing costs. According to him, in order to meet fiscal targets, the authorities may invoke Article 49.3 of the Constitution, which allows a bill to pass through the National Assembly without a final vote if lawmakers do not pass a motion of no confidence, or resort to executive ordinances.
Impact on the economy and companies
New demonstrations are scheduled in France for October 24, while a nationwide day of strikes and protests supported by trade unions is planned for November 5. ING economist Charlotte de Montpellier warned that a prolonged loss of confidence could have a more substantial impact on the economy than short-term disruptions. ING expected France’s GDP to grow by only 0.3% in 2026 and 0.6% in 2027, but prolonged unrest and market tensions could weaken these figures.
According to ING, retail trade, the hotel, restaurant and tourism business, as well as transport and logistics, are the most vulnerable. The CAC 40 index fell 4.5% over the month. Carrefour shares dropped more than 14% on Wednesday after the company cut its profit forecast and reduced investment, citing, among other things, the impact of the unrest on consumer sentiment. According to estimates by the network of French chambers of commerce and industry cited by ING, more than 2,000 businesses had been directly affected as of Tuesday.
