The yield on French 10-year OATs rose intraday on Thursday to 4.9629 percent, just below the 5 percent threshold and the highest level since 2002, before reversing course after the government presented its draft 2027 budget. Around 11:05 GMT the yield stood at 4.8309 percent, down 1.2 basis points on the day, after the third quarter closed with the sharpest quarterly rise in French long-term borrowing costs in nearly 40 years, according to data compiled by Reuters and reported by Boursorama. The premium investors demand to hold French 10-year debt instead of German Bunds of the same maturity touched 133.18 basis points at the session high, the widest since May 2012, before easing back to 127.52 basis points.
The French move is part of a broader repricing of European sovereign debt. Germany's 10-year Bund yielded 3.582 percent after climbing to 3.6432 percent intraday, close to Monday's peak of 3.6526 percent, the highest since June 2009; the Bund has risen 71 basis points over the third quarter. In Italy, the 10-year sovereign yield touched 4.7271 percent and the BTP-Bund spread reached 107.49 basis points, the widest gap since May 2025. Britain's 30-year borrowing costs crossed 6 percent, a level last seen in 1998, while US 10-year and 30-year Treasury yields hit their highest since 2002, at 5.32 percent and 5.66 percent, after the worst quarter for US government bonds since 1994. The sell-off persisted even as oil prices fell on recovering Gulf exports and an unexpected build in US inventories.
The catalyst on Thursday was fiscal. Prime Minister Sébastien Lecornu presented a draft 2027 budget built on 43 billion euros in new savings, with the reaffirmed aim of bringing the public deficit back to 3 percent of GDP in 2029. The government missed its 5 percent deficit target for 2026, with estimates currently standing at 5.4 percent, and is aiming for 5 percent in 2027. According to Ministry of Finance forecasts cited by Il Sole 24 Ore, the compulsory tax ratio will reach 44.2 percent of GDP in 2027, up from 43.9 percent in 2026. Lecornu ruled out across-the-board tax increases, instead raising budgets for armed forces, justice, home affairs, defence, housing, research and the environment, offset by what the government called very substantial savings elsewhere, including 2.5 billion euros from the labour ministry. Austerity measures are expected to affect local authorities and social security, while a reduction of the surtax on businesses is planned. Il Sole 24 Ore also notes that the measures are largely reversible by the new parliamentary majority expected to emerge from the 2027 general election.
