France hit by debt sell-off as violent protests unnerve investors

Difference between French and German borrowing costs widens after public buildings burned and shops looted
France has been hit by a fresh wave of selling in its bond and stock markets after violent protests over the weekend led to thousands of arrests and left public buildings burned and hundreds of shops looted across the country.
The chaos has spooked investors as analysts worried that it would undermine Paris’s efforts to cut spending and reduce its debt.
The yield on the government’s 10-year bonds rose by as much as 16 basis points to 4.94% on Monday. Yields rise when prices fall, and the bond market sell-off pushed France’s borrowing costs close to a 24-year high.
This widened the difference between the French and German 10-year borrowing costs – which is a metric for the risk premium attached to French debt – towards its highest level in 14 years.
Analysts at Goldman Sachs said European sovereign risk was back in focus, with fiscal concerns about France raising the question of whether there could be a repeat of the eurozone debt crisis of 15 years ago.
“The risks of disorderly market escalation and real economy contagion look notably lower. But the fundamental fiscal challenges for some countries – especially in France – look harder now than in 2011-15,” the investment bank said.
“The issue of how to deal with fundamental sovereign risk remains unresolved in the euro area, requiring credible fiscal consolidation.”
The two-year French bond yield rose by nine basis points to 3.64%.
Concerns about France’s instability knocked the euro down to a 17-month low against the pound on Monday morning, when sterling rose to €1.188.
Violence erupted across France after weeks of relatively peaceful demonstrations over conditions in schools and the cost of living, prompting the French president, Emmanuel Macron, to condemn the “unbridled violence” in a televised address on Sunday night.
Tens of thousands of people have attended peaceful marches to demand more teachers and repairs to decrepit schools, but different groups have clashed with police in cities including Paris, Bordeaux, Nice and Marseille.
Jim Reid of Deutsche Bank said the protests “won’t make it easy for the international community to be totally comfortable buying OATs”, referring to French government bonds.
“With France already facing a difficult fiscal backdrop and the 2027 election approaching, the weekend adds another layer of political risk for markets,” he said.
The 30-year bond, which is a benchmark for the French government’s long-term cost of borrowing, rose by ten basis points to 5.46%.
The rises will put further strain on France’s public finances as the government tries to pass a budget for next year to rein in its deficit .
France’s debt-to-GDP stood at 115.6% in 2025, while its budget deficit was 5.1%, compared with 94.3% and 4.3% respectively for the UK.
The unrest adds to “concerns about the political and fiscal troubles in France”, said Neil Wilson, Saxo UK’s investor strategist.
“It underscores how hard it will be for a government to enact the kind of spending restraint required to get the deficit down.”
The French government is preparing a budget that would involve cutting pensions spending and funding for government departments, excluding defence. There are growing fears, however, that political pressure could derail the plans, which could push up borrowing further and add more to the country’s debt pile.
The euro also slipped against the US dollar, down by 0.4% at one stage on Monday to $1.1197.
France’s Cac 40 index, which tracks the biggest companies listed in Paris, fell by 1.4% , compared with a 1.1% drop on the pan-European Stoxx 600 index.
French bank stocks were among the fallers, with Société Générale and BNP Paribas down more than 3%.
Other European stock markets also weakened, with Italy’s FTSE Mib down 1.6% and Spain’s Ibex dropping by 1.9%.
Daniela Hathorn, a senior market analyst at Capital.com, said investors were concerned that higher borrowing costs would increase France’s debt-servicing expenses, reducing its fiscal flexibility at a time when growth is already subdued.
“But France is not alone,” he said. “Spain faces its own political constraints around budgets and fiscal reforms, although stronger economic growth provides some protection, while Italy’s substantial debt stock leaves it particularly sensitive to prolonged periods of elevated yields.”
Source: The Guardian. Summary reproduced for informational purposes.
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