MediumIV Macro Policy & Sovereign Debt30 September 2026, Wednesday
France presents its budget with the widest bond spread since 2012
As France presents a budget with 54 billion euros of savings on 1 October, its 10-year borrowing cost is 111–120 basis points above Germany's. The spread has not been this wide since 2012.
According to a Tech Times report of 30 September, France's 10-year bond yield rose to 4.74% and Germany's to 3.63%, a gap of 111.2 basis points. At the start of the year the spread was about 55 basis points. Newsquawk wrote that at 07:00 UTC the same morning the spread reached 120 basis points, its highest level since 2012. The 9 basis point difference between the two sources may stem from the time of measurement; this could not be verified.
According to a Reuters market summary published on Euronext, France's 10-year yield posted its biggest quarterly jump in about 40 years in the third quarter. According to Tech Times, the government will present a 54 billion euro budget package on 1 October, with a parliamentary vote on 17 November. Public debt reached 119.3% of GDP in 2026. Interest payments are 5 billion euros above forecast in 2026 and 7 billion euros above in 2027. The country has had 3 prime ministers in 14 months, and the presidential election is in April 2027.
Talay assessment
Bottom line
The pressure on France stems from fiscal credibility more than inflation. The spread has doubled since the start of the year, and the interest bill is eroding the budget's savings target. The package presented on 1 October will be tested by parliamentary arithmetic until the 17 November vote. For the spread to narrow, the package must be credible and the government must survive.
Likely effects
- Euro area bondsNegativeWeeks
With the spread at its 2012 level, the main question is whether the pressure spreads to Italian and Spanish bonds.
- French public financesNegative1–6 months
Interest payments 7 billion euros above forecast in 2027 swallow part of the 54 billion euros in savings from the outset.
- TürkiyeNegative1–6 months
Higher borrowing costs in Europe could tighten euro credit conditions and make euro borrowing more expensive for Turkish companies.
Possibilities, ranked
- 1Tense passage50%
The package is presented, parliamentary bargaining continues and the spread stays in a 100–120 basis point range.
Watch: Whether the OAT–Bund spread stays above 120 basis points until the 17 November vote
- 2Political crisis30%
A confidence vote or the fall of the government pushes the spread above 120 basis points and rating agencies act.
Watch: No-confidence motions tabled in parliament and rating agencies' calendar for France
- 3Confidence recovers20%
The package is seen as credible and the spread falls below 100 basis points.
Watch: The spread closing below 100 basis points in the first week after 1 October
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- OAT–Bund 10-year spread▼ 111–120 bp
- France 10-year yield▼ 4.74%