Government bonds: For the first time since 2002: France's ten-year yield reaches five percent

Dusseldorf. The interest rate on ten-year French government bonds reached the five percent mark in the middle of the week for the first time since 2002. In morning trading on Wednesday, the yield rose to 5.00 percent, marking a new 24-year high. As a result, it traded just below the round level.

In view of political and social tensions, more and more investors are selling French government bonds. This depresses prices and, conversely, yields rise. The government led by Prime Minister Sébastien Lecornu is currently trying to pass the budget for 2027 in parliament. However, he still lacks the majority for the targeted spending cuts of 43 billion euros.

Debt in Paris has reached record levels. The debt ratio is expected to increase to almost 120 percent of gross domestic product this year. A further increase is expected in the next few years. According to the Maastricht criteria, the member states of the European Union actually commit to an upper limit of 60 percent.

Concerned about fiscal developments, investors have been demanding higher risk premiums for months. In July the return was 3.6 percent, but at the end of August it rose to over four percent. This week alone it rose another 25 basis points.

In the short term, returns will also be driven by the riots and the uncertainty they cause. Over the weekend, demonstrators clashed with police in several cities, set cars on fire, stormed public buildings and looted shops. The protests were directed against rising living costs and poor conditions in schools.

Higher bond yields make it more expensive for a state to borrow on the capital market. The French government's conditions are now significantly worse than those of Italy or Greece, which are even more indebted.

In many economies around the world, bond prices have fallen and yields have risen in recent months. But this movement is particularly pronounced in France. This is shown by a comparison with the development of the federal bond, which is considered to be particularly safe. The difference in returns between the two – the so-called “spread” – is a measure of the prevailing trust in the market.