France’s 10-year debt now yields more than 4.3%, a level not seen since the 2008 financial crisis. This increase does not automatically revalue all State borrowings, however it gradually increases their refinancing.
In brief
- The French 10-year debt rate exceeds 4.3%, a peak since 2008.
- New borrowing and refinanced debts become progressively more costly for the state.
- The gap with the German rate is approaching 90 basis points, a sign of an increased risk premium.
- The rise in yields is also affecting international bond markets.
- Sustainedly high rates could reduce France’s budgetary margins.
New French bonds become more expensive
On September 9, the yield on the ten-year OAT was around 4.3069%, while interest on the debt exploded. An OAT constitutes an obligation issued by the French State to finance its expenses and the reimbursement of maturing securities. Its return is equivalent to the remuneration demanded by the investments.
The French rate was still around 3.6% last June, then 3.90% a month before this new peak. During its auction at the beginning of September, Agence France Trésor had to offer a yield of 4.23% compared to 3.90% in August and 3.73% in July, according to the statistics available.
Numerous on-chain indicators allow this tension to be measured:
- The French ten-year OAT gained 8.5 basis points to reach 4.3069%;
- The French thirty-year bond crossed 5%, with a yield of 5.04%;
- The ten-year German Bund yielded 3.4183%;
- The gap between French and German rates approached 90 basis points.
One basis point constitutes 0.01 percentage point. This gap of 90 points therefore indicates that France must offer around 0.9 points of additional yield compared to Germany. Such a difference determines the risk premium demanded by investors.
The rate of 4.3% does not apply to old bonds issued at a fixed rate. Its impact appears if the State contracts a new debt or replaces a matured security. The bill therefore increases gradually if yields remain high.
Bond markets under global stress
The increase in rates is not only linked to France. Indeed, German, American and British bonds are also going through a complicated period. If investors sell these securities, their price falls and their yield increases mechanically.
The rise in oil prices is fueling fears of a further rise in inflation. It increases transport and production costs. Under such conditions, central banks would keep their rates fairly high or make further increases.
States and companies also issue numerous debts. This significant offer forces borrowers to offer more attractive remuneration in order to find buyers. The yield on the ten-year German Bund thus reached its highest level since 2011.
From then on, France is experiencing an international trend. However, the evolution of its gap with Germany reveals that investors do not react exclusively to the global context. They also demand a bonus linked to the French budgetary and political situation.
The debt burden reduces budgetary margins
The French government lowered its growth projection for this year from 0.7% to 0.5%. He also recognizes that he will not bring back the public deficit at 5% of gross domestic product as planned.
The debt burden could be around 65 billion euros in 2026. This amount exceeds the initial projection by 4.5 billion and becomes the main expenditure item for the State. A lasting increase in rates would further reduce the resources available for education, defense, health or the energy transition.
Kevin Thozet, member of the Carmignac investment committee, precise : “France is particularly exposed to rising rates”. According to the latter, the return to a deficit of 3% of GDP by 2029 could require nearly 85 billion euros of adjustment compared to the current trajectory.
Such an estimate does not equate to an immediate saving of 85 billion euros. It assesses the gap between current public finances and the trajectory necessary to respect the European objective.
France continues to find buyers for its bonds. It is therefore not faced with the impossibility of financing itself. The risk comes rather from a bill that increases with each debt renewal. Future budgetary choices will have to reassure investors to annihilate a further increase in this risk premium.
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