France 10-year bond yields surpass 5% as political deadlock deepens

France has seen its borrowing costs rise to their highest level in nearly a quarter of a century as investors react to political deadlock and persistent street unrest across the country.

Yields on the French government's benchmark 10-year bonds climbed past 5% during morning trading before retreating slightly to 4.99%. The sharp increase of over eight basis points marks the first time in 24 years that interest rates on France's sovereign debt have exceeded that threshold.

The pressure on sovereign debt comes as the government struggles to secure approval for its upcoming budget in a divided parliament. Since President Emmanuel Macron's decision to call a snap election in 2024, no political party has held an absolute majority. The resulting parliamentary stalemate has obstructed key policy initiatives, including plans to raise the state pension age from 62 to 64 along with broader public spending cuts.

Public finances have continued to deteriorate, with the French fiscal deficit reaching 5.1% of gross domestic product in 2025 and total debt standing at 115.6% of GDP. Projections indicate that both figures will expand further in the absence of corrective fiscal policies.

Financial markets have grown increasingly wary of French public accounts. Several international investors, including major fund managers in Japan, have scaled back their exposure to French sovereign debt, while remaining bondholders are demanding higher returns to finance longer-term obligations.

The fiscal unease has been compounded by widespread civil unrest that initially began in September. What started as student-led demonstrations over poor school conditions, staff shortages, and overcrowding quickly broadened into nation-wide protests concerning the wider cost of living. Clashes between demonstrators and law enforcement subsequently escalated into riots across numerous cities, leading to the looting of luxury retail stores and an arson attack on the town hall in Limoges.

The ongoing instability has also placed pressure on the broader European economy. Matthew Ryan, head of market strategy at Ebury, noted that the persistent political risk premium surrounding France is suppressing the value of the euro against other key currencies, as uncertainty lingers over whether any final spending plan can meaningfully address the country's structural deficit.