French sovereign risk intensified on Monday as credit default swap spreads on the 10‑year OAT jumped to their highest level since March 2020. The surge reflects market alarm over France's projected debt‑to‑GDP ratio, which the finance ministry expects to reach a record 119.3% in 2026 and rise to 121.7% in 2027.
The heightened risk pressure pushed the French 10‑year OAT yield to 4.502%, up more than 90 basis points year‑to‑date. By contrast, Germany's benchmark yields remained relatively stable, with the 2‑year Schatz consolidating around 3.229% and the 10‑year Bund edging up to 3.479% after rebounding from a week‑long low.
Equity markets showed mixed reactions. France's CAC 40 index was flat on the day at 8,065.02, down 121.91 points (‑1.49%) from its prior close, while the broader STOXX 600 index posted a 7% gain for the year.
The European Central Bank's recent policy move, a 0.25‑percentage‑point rate hike to 2.50%, provided temporary support to euro‑area yield curves. However, the ECB's tightening comes amid growing concerns that France's fiscal trajectory could erode the traditional safe‑haven status of its government bonds, especially after the fragmented legislative elections and subsequent credit‑rating downgrades.
Energy market dynamics offered a brief reprieve to the curve. Brent crude futures retreated, and alternative shipping routes from the Persian Gulf helped ease European energy price pressures, limiting further upside in sovereign yields.
Overall, the convergence of elevated French debt levels, persistent fiscal gridlock, and a tighter ECB stance has heightened risk premia across euro‑area sovereign markets, underscoring the need for policymakers to address structural deficits.
