Public debt: Bercy under pressure, investors remain skeptical

The French State is preparing to face a year of high tension on the financial markets. With 300 billion euros to borrow in 2025, an unprecedented level of debt, Bercy must maneuver in a particularly unstable environment. The France Trésor Agency (AFT), responsible for debt issues, finds itself facing a double challenge: guaranteeing the financing of the country without destabilizing the markets, and reassuring increasingly cautious investors. Indeed, political uncertainty further complicates the situation. Since the fall of the Barnier government, France has operated without a voted budget, which reinforces doubts about the country's budgetary trajectory. A special law adopted urgently certainly makes it possible to maintain borrowing, but this temporary solution is not enough to allay concerns. On the markets, signs of feverishness are increasing. The rate gap between France and Germany, a key indicator of investor confidence, has doubled in one year to exceed 80 basis points. This signal reflects a riskier perception of French debt and could increase the cost of financing. In this climate of uncertainty, Bercy must find the right balance. Will AFT's strategy, based on predictability, regularity and flexibility, be enough to avoid an excessive rise in interest rates? A few days before the first auctions, pressure is mounting on financial officials, while investors await guarantees on the country's budgetary stability.

A colossal financing need under surveillance

The France Trésor Agency (AFT) is launching its financing program for 2025 in a climate of strong pressure relating to the explosion of debt. From January 6, it plans a first auction of Treasury Bills (BTF), short-term debt securities. A few days later, it will put on the market Assimilable Treasury Bonds (OAT), which generally attract institutional investors due to their longer maturity. Such emissions are part of a well-established strategy, structured around three fundamental principles: predictability, regularity and flexibility. Each week, the supply of securities is adjusted according to demand, in order to ensure optimal liquidity on the market.

However, the exercise promises to be more perilous than in previous years. France plans to borrow 300 billion euros in 2025, a historic level which even exceeds that of Italy, although it is often cited among the most indebted countries in the euro zone. This amount marks a notable increase compared to the 285 billion euros raised in 2024. According to an official press release, the AFT does not rule out adjusting this financing need during the year, depending on budgetary decisions to be made. come. This uncertainty reflects a particularly tense economic and political situation, in which the State must assume increasing expenses in order to control its deficits.

The political crisis shaking France further accentuates the fragility of the budgetary framework. Thus, the fall of the Barnier government left the country without a voted budget for 2025, forcing the executive to adopt a special emergency law in order to guarantee the continuity of public funding. If this measure temporarily allows bond issues to be maintained, it does not completely reassure investors, who are looking with concern at the lack of visibility on the budgetary trajectory.

Since the dissolution, French borrowing rates have continued to rise, leading to a widening of the spread with Germany. This gap, now greater than 80 basis points, has doubled in one year, which illustrates the growing mistrust of the markets regarding French debt. At this stage, Bercy must absolutely convince that the situation remains under control, otherwise the cost of financing the State could increase even further.

Feverish markets in the face of political uncertainty

Although French debt remains highly attractive to investors, budgetary uncertainty is starting to weigh on the market. The lack of visibility on public finances calls for greater caution, particularly among institutional players. Antoine Deruennes, director general of Agence France Trésor (AFT), nevertheless tries to reassure. “We will continue to rely on the same principles that have made us successful,” asserts-he. In addition, it highlights the institution's ability to adapt to market conditions. To preserve investor confidence, AFT relies on a proven strategy, based on the regularity of bond issues. Every week, Treasury Bill (BTF) auctions are organized, while Treasury Assimilable Bonds (OAT) are offered every two weeks. Such an approach aims to ensure adequate liquidity and provide buyers with maximum predictability on the issuance schedule.

However, critical signals are emerging. Some foreign investors, particularly in Asia, are reducing their exposure to French debt. The gradual disengagement could increase pressure on borrowing rates, forcing the State to finance its debt at a higher cost. Christopher Dembik, economic advisor at Pictet AM, however, puts the risk of a brutal shock into perspective. “A panic scenario, where demand would not be sufficient, remains unlikely, but the financing cost is likely to be higher,” he analyzes. If this increase in rates is confirmed, it will lead to a mechanical increase in the debt burden and further reduce France's budgetary room for maneuver.

Behind the scenes, market operators are monitoring emissions developments with increased attention. In 2024, AFT managed to complete its loans at an average rate of 3.06%, slightly lower than the 3.16% recorded in 2023. However, the year 2025 could reverse this trend and mark a turn in the trajectory financial situation of the country. Investor confidence will largely depend on budgetary decisions taken in the coming months. As negotiations around the future budget progress, markets await clear signals on the state's ability to stabilize its finances. In the absence of credible commitments, the French debt could become a more costly burden than expected, with lasting repercussions on the country's economy.

The threat of a lasting rise in interest rates is causing serious concern, both among economists and in political circles. So far, France has managed to finance itself without difficulty, but a prolonged deterioration in the market climate could quickly reduce its budgetary room for maneuver. This situation goes beyond national borders. An increase in tensions over French debt would weaken the entire euro zone, which would expose its partners to a risk of contagion. Despite these uncertainties, the State adopts a discourse which reassures and relies on the stability of its emission strategy. However, this posture will not suffice indefinitely. As the year progresses, investors will demand clear commitments on the country's fiscal trajectory. Without a credible response, the debt could quickly turn into a much more costly burden, with serious consequences for the French economy and market confidence.