With rates rising sharply, public debt management is becoming a crucial issue for France, in a tense global economic environment.
The yield on ten-year French sovereign bonds reached 3.40%, an unprecedented level since 2011. This increase reflects international tensions on the bond markets, amplified by economic and political uncertainties specific to France.
A global trend that impacts France
For several months, borrowing rates have experienced a general increase in global financial markets. In the United States, ten-year yields have exceeded 4%, and British bonds are following a similar trajectory. This phenomenon is largely explained by the withdrawal of central banks, which stopped massively purchasing sovereign securities, thus reducing their support for bond markets.
This disengagement comes as states plan record volumes of debt issuance to finance their budgetary needs. France, for example, aims to raise 300 billion euros in 2025 according to Le Figaro. A goal now more expensive due to the increase in bond yields.
Political instability at the heart of concerns
The situation in France is characterized by political uncertainties which weigh heavily on the markets. The possibility of a return to pension reform, mentioned by François Bayrou, has revived investors’ fears. This reform, which set the retirement age at 64, is seen as a marker of budgetary credibility. Questioning this measure could signal an inability to stabilize public finances, which are already fragile.
This instability is reflected in the widening of the spread between French and German bonds, a key indicator of risk for investors. Last Thursday, this gap reached 86 basis points, a level that has been steadily increasing since the start of the year.
Direct repercussions on public finances
The increase in borrowing rates mechanically increases the cost of French debt. In 2025, a significant part of the budget will be devoted to interest repayment, thus limiting room for maneuver for other public spending.
This increase also complicates the financing of new infrastructure projects or social spending, at a time when public expectations are high.
At the same time, the pension system deficit, estimated at more than 10 billion euros according to France Info, worsens the situation. This deficit could further increase due to the unfavorable economic situation and the rise in unemployment, which is weighing on contribution revenue.
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