“How did you go bankrupt?” In two ways. Gradually, then suddenly. » The French debt has long lived half of this line from Ernest Hemingway, taken from the novel The Sun Also Rises. This week, markets started to repeat the second. Friday, October 2, 5-year credit default swaps (CDS), contracts which serve as insurance against payment default, in France touched 81 basis points (one basis point is worth 0.01%). This is their highest level in several years.
However, the Lecornu government has just presented a 2027 budget with 54 billion euros in savings. Investors clearly expect something other than savings on a spreadsheet: they want to see them voted on, then held.
CDS France at 81 points: the price of insurance against state bankruptcy
A CDS works like an insurance policy. The buyer pays a premium each year and the seller reimburses the loss if the borrower stops paying. With a CDS France at 81 points, protecting 10 million euros of debt costs 81,000 euros per year, or 0.81% of the insured amount. The bill is steep.
This peak emerges from S&P Global data relayed on Friday by Dow Jones. Let's keep a cool head. We remain very far from the euro crisis of 2011, when insuring the Italian or Greek debt cost several hundred points. Furthermore, no one is betting on Paris defaulting between now and Christmas. The market is charging for a risk that it was blissfully unaware of two years ago. And he charges more and more for it.
OAT-Bund and CDS spread: France borrows more expensively than Italy
CDS never move alone. The difference between the French 10-year rate and its German equivalent is called the OAT-Bund spread. The OAT (Assimilable Treasury Bond) designates a loan from the French State, the Bund its German equivalent, considered the safest in the euro zone. The higher the gap, the more France pays compared to Germany. It crossed 100 basis points on September 18, a first since 2012, as Boursorama reported at the time. It reached 159 points on Friday October 2, the highest since November 2011 according to Dow Jones. The 10-year OAT was then displayed at 4.99%. Concretely, Paris pays almost 1.6 points more than Berlin each year to borrow over ten years.
Italy, long a dunce of the euro zone, now borrows significantly cheaper. On September 30, the Italian 10-year BTP (the equivalent of the OAT) closed at 4.60%. The OAT, on the other hand, ended at 4.84%, according to Il Sole 24 Ore. The dunce overtook the top of the class.
2027 and presidential budget: why the market no longer believes France
Put yourself for a second in the place of a bond manager, this professional who grows his clients' savings by lending to States. You lend to a State whose debt reaches 119% of GDP, that is to say more than all the wealth produced by the country in one year. Its deficit is around 5.4% of GDP in 2026, almost double the European limit of 3%. You then see this same State present 54 billion euros in savings before a Parliament without a majority. To be prudent, you buy a France CDS to cover yourself. If all managers do the same, the price of this insurance rises.
The April 2027 presidential election complicates everything. No party has any interest in voting for salary freezes or a lower increase in pensions six months before the election. But the managers know this. They doubt France's solvency less than its ability to vote for a budget that stabilizes its debt. It is this doubt that the CDS France measures.
Bitcoin facing the French debt crisis: the refuge will wait
On X, the surge in France CDS triggered the usual reflexes: the debt is collapsing, buy bitcoin. The argument has its logic. An asset capped at 21 million units escapes any dilution: no public treasury can create more to pay off its debts. It gains in appeal when the signature of a G7 state deteriorates.
The figures still call for caution. Bitcoin was trading around $86,000 on Friday morning. It gained 9.6% over one month but fell 28.5% over one year. Its rise owes more to the forced closure of downward bets (liquidation of short positions) and the decline in American interest rates than to Parisian excitement. Despite a CDS France at its highest, no flight to BTC yet.
