HighIV Macro Policy & Sovereign Debt1 October 2026, Thursday
France's borrowing costs hit their highest since 2002 on budget day
France's ten-year government bond (OAT) yield touched 5% during trading on 1 October and closed at 4.90–4.92%. The spread over Germany widened to 130 or 140 basis points, depending on the source, while German and US bonds pulled back from their highs.
According to Trading Economics, France's ten-year yield stood at 4.90% on 1 October, its highest level since July 2002. Il Sole 24 Ore put the close at 4.92% and reported that the yield had touched 5% during the session. The spread, meaning the gap between French and German ten-year yields, was 130 basis points according to Trading Economics and 140 according to Il Sole 24 Ore. On 30 September the gap had been reported in a range of 111–120 basis points.
Trading Economics reported that the government unveiled a 54 billion euro savings plan aimed at cutting the deficit to 5% of GDP in 2027. According to the same source, debt is expected to exceed 120% of GDP next year, with borrowing of 340 billion euros planned for 2027. Germany's ten-year yield rose to 3.64% during the session, its highest since 2009, before closing at 3.50%. Italy's ten-year yield closed at 4.69%, leaving its spread over Germany at 119 basis points.
Talay assessment
Bottom line
The global bond sell-off changed direction on 1 October. German and US bonds found buyers, while France and Italy diverged. This shows that the problem is not only global interest rates but France's debt sustainability. For now, the 54 billion euro plan has not been enough to narrow the spread.
Likely effects
- French public financesNegative1–6 months
A yield approaching 5% increases the interest burden on 340 billion euros of borrowing in 2027 and makes the deficit target harder to reach.
- Eurozone peripheryNegativeWeeks
Italy's spread widening to 119 basis points shows pressure originating in France spreading to other highly indebted countries.
- TürkiyeNegative1–6 months
Higher borrowing costs in Europe could raise refinancing costs for Turkish companies and banks that borrow abroad in euros.
Possibilities, ranked
- 1Spread stays wide55%
The OAT–Bund gap remains above 130 basis points while the budget is debated in parliament.
Watch: The first votes on the French budget in the National Assembly
- 2Orderly narrowing30%
If global yields retreat, the spread returns to its 30 September range of 111–120.
Watch: Germany's ten-year yield staying below 3.50%
- 3Rating pressure15%
A credit rating agency takes negative action, and the ten-year yield closes above 5%.
Watch: Announcements on France's October–November rating calendar
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- France 10Y (1 October)▼ 4.90–4.92%
- OAT–Bund spread▼ 130–140 bp
- Germany 10Y (1 October)▲ 3.50%
- Italy–Germany spread▼ 119 bp