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France's debt troubles look like everyone else's, only worse

A big deficit, a stalled budget and record planned bond sales for 2027 have made French debt the euro zone's pressure point, and other indebted countries are feeling it.

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Why it matters: Investors are turning up the heat on Italy, Belgium and Greece too, and France plans a record €340 billion of bond sales in 2027.

For information only, not investment advice.

France's deficit is still well above its targets
Sainteur chart · Data: Reuters

France has become the stress point of the euro zone bond market. A huge deficit, political stalemate in Paris and the worst civil unrest in years are the latest catalysts for the French selloff, Reuters reported, and investors are now turning up the heat on Italy, Belgium and even Greece.

J.P. Morgan Asset Management says the widening gap between French and German yields reflects three forces: higher global yields, technical position unwinds, and France-specific fiscal and political risk. That is the same problem everyone has, plus France's own.

The numbers are the problem. France expects a deficit of 5.4% of GDP this year, against an initial goal of 5.0% that is now the 2027 target, and EU rules require it below 3% by 2029, Reuters reported. And France plans a record €340 billion of bond sales in 2027 to fund the government and refinance COVID-era debt, according to Reuters.

The refinancing math is the worry, as Reuters reported it: "Markets look ahead and they say 'well, if borrowing costs stay this high, then eventually you're going to have to refinance at higher rates'," said Mike Bell, head of market strategy at BlueBay Asset Management.

Euro zone finance ministers and the ECB told France on Oct. 8 to pass a 2027 budget to calm bond markets, Reuters reported, though investors doubt the tightening can survive a fragmented parliament and the April and May 2027 elections. The next test may come sooner: S&P's review on Nov. 27 could shift France's outlook to negative, J.P. Morgan Asset Management says. France is already single-A with S&P.

Sources

  1. French bond pain puts euro zone's weak links on notice, Reuters (via Euronext)
  2. Euro zone ministers tell France to pass 2027 budget to calm markets, Reuters (via Yahoo Finance)
  3. IMF: French Bond Yields Manageable, But Fiscal Pressure May Grow, Reuters (via Global Banking & Finance Review)
  4. France update: Our take on equity, bond and policy implications, J.P. Morgan Asset Management

Tags: europe · interest-rates · treasury · elections