Why Bond Vigilantes Target France Differently

French Bond Yields Match Greek Levels Amid Political Turmoil

Yields on French 10-year bonds have risen to levels comparable to those of Greece, signaling market concerns over France’s political and fiscal stability. On Tuesday, French bond yields reached 2.90%, just shy of the 2.92% yield on Greek bonds of the same maturity, according to FactSet.

While still below the July peak of 3.28%, this marks a significant shift for a country long considered a pillar of European financial stability.

The rise in borrowing costs comes as Prime Minister Michel Barnier’s government faces a no-confidence vote on Wednesday, threatening its survival just three months after taking office. Barnier’s administration was formed following President Emmanuel Macron’s call for snap elections aimed at curbing the influence of Marine Le Pen’s far-right National Rally party.

However, political uncertainty has deepened, with questions mounting about France’s ability to stabilize its debt-to-GDP ratio, which stands at approximately 112%.

France’s high level of foreign-held debt amplifies its vulnerability in the bond market. Robin Marshall, director of global investment research at FTSE Russell, highlighted that around 40% of French government debt is owned by overseas investors. “Foreign holdings are often quite volatile,” he noted, making France’s debt particularly sensitive to external market sentiment.

Unlike other recent debt market disruptions, such as the U.K.’s gilt crisis under Liz Truss or the rise in U.S. yields tied to Donald Trump’s fiscal policies, France’s bond sell-off is rooted in political deadlock and austerity measures. The European Commission has already criticized France for excessive debt, and Barnier’s 2025 budget proposal, which includes tax increases and spending cuts, has failed to ease investor concerns.

Strategists Thierry Wizman and Gareth Berry of Macquarie describe the situation as a referendum on political paralysis, warning that the uncertainty undermines confidence in France’s fiscal trajectory. “This raises doubts about whether France can ever stabilize its debt burden,” they noted.

The bond market’s reaction underscores the influence of global creditors, who remain vigilant over fiscal policies. As borrowing costs rise, France’s political and financial challenges serve as a stark reminder of the importance of fiscal discipline in maintaining market confidence.