Euro Falls to 17-Month Low on French Debt and Political Worries
The euro slid Monday to its lowest level against the dollar in 17 months as concerns mounted over France's high debt and deficits, sending French government bond yields soaring. The decline followed an underwhelming 2027 budget plan unveiled last week that fanned fears French government spending will stay high ahead of next year's presidential elections, in which the far-right Marine Le Pen, seen as a fiscal populist, stands a chance of winning. French debt is projected to rise to nearly 122 percent of the country's GDP next year despite billions of euros in planned spending cuts, pushing the 10-year government bond yield to 4.8 percent, the highest since the 2011 eurozone bond crisis. A call for snap elections in Spain by Prime Minister Pedro Sanchez added another layer of uncertainty, with Patrick Munnelly of Tickmill Group saying Europe's political risk is weighing on the euro. In Paris, the CAC 40 fell 0.9 percent to 7,824.28, dragged down by bond-yield worries and a nearly 10 percent drop in Schneider Electric shares after the company unveiled a $22.6 billion all-cash deal to buy the US engineering software specialist PTC.
Euro Slides as French Fiscal Fears Widen France-Germany Yield Gap
The Euro came under intense selling pressure against its major currency peers as increased French fiscal concerns and political instability drove a sharp widening in the yield gap between French and German government bonds. France's Finance Minister Roland Lescure has vowed to cut the budget deficit from a target of 5% of economic output next year to the European Union limit of 3% by 2029, but analysts at BBH said they doubt the proposal will clear parliament without significant concessions, given the minority government. Ten-year French bond yields rose 0.65% to near 4.89% at press time after posting a fresh multi-decade high near 5% on Friday, and have gained over 28% in the last two months, while 10-year German Bund yields fell 1.26% to near 3.41% and have risen over 10% over the same period. The weaker Euro could boost the competitiveness of exports but raises the cost of imported goods, complicating the European Central Bank's fight against energy-driven inflation, and investors will focus later in the day on a speech by ECB Chief Economist Philip Lane scheduled for 08:00 GMT. Heightened French risk concerns have also improved the safe-haven appeal of the Swiss Franc, with investors watching Swiss Unemployment Rate data for September due on Tuesday.
EURUSD.FOREX · Monetary · Negative Euro sold off broadly as French fiscal fears widened the France-Germany yield gap, weakening the euro.
FR-10Y.GB · Monetary · Negative French 10Y yields surged to multi-decade highs on fiscal concerns and political instability, widening the France-Germany spread.
DE-10Y.GB · Monetary · Positive German Bund yields fell as safe-haven demand rose amid French fiscal fears, pushing the yield down (bond price up).
Japanese investors hold $145 billion in French bonds, risking a fresh wave of selling
Japanese investors hold French bonds at a far higher share than the market benchmark. Bloomberg estimates that as of July, Japanese investors held about 23 trillion yen in French bonds, or roughly $145 billion, equal to 6.6% of Japan's total holdings of foreign debt securities, making it the most overweight eurozone investment relative to the Bloomberg Global Aggregate Index. The risk comes as the French bond market faces heavy pressure after the government failed to meet its budget deficit targets, compounded by policy gridlock and uncertainty ahead of next year's presidential election. The yield on 10-year French government bonds has now risen to about 5%, the highest since 2002, while French government bonds have returned minus 4.9% since the start of the year, making it the fourth-worst performing bond market in the world, and Japanese investors' holdings of French bonds have already fallen 2.5% from the end of last year. Hideo Shimomura of Fivestar Asset Management warned that the current selling of French bonds may only be the beginning, and that if the European Central Bank takes no action, the yield on 10-year French government bonds could rise to 7%. Meanwhile, the global bond funds at Sumitomo Mitsui DS Asset Management have already sold all of their French bond holdings over concerns about the country's fiscal position.
FR-10Y.GB · Monetary · Positive Heavy selling pressure on French bonds amid fiscal deficit miss and policy gridlock pushes the 10Y yield up toward 5% and potentially 7%, with Japanese investors' $145B holdings at risk of further liquidation.
Euro Falls Below 1.1200 to May 2025 Low on France Debt Crisis
The Euro dropped below the 1.1200 mark against the US Dollar on Monday, hitting its lowest level since May 2025 during the Asian session. Spot prices traded just above 1.1150, down around 0.85% for the day, pressured by concerns over France's deepening debt levels and political gridlock ahead of next year's election. French borrowing costs have climbed alongside global yields, with the benchmark 10-year government bond yield rising above 4.9% and close to its highest level in decades, while France's debt-to-GDP ratio is expected to climb to 122% next year from 119% this year. Far-right leader Marine Le Pen, who leads in the polls for the presidential race, has proposed tax cuts and vowed to bring down France's retirement age to as low as 60, adding to market worries. Meanwhile, the US Dollar rallied to a fresh high since April 2025 as persistent geopolitical uncertainties countered Friday's disappointing US Nonfarm Payrolls report, which further tempered October Federal Reserve rate hike bets.
Half of French Bond Selling Driven by Hedge Funds, Fidelity CIO Says
Marion Le Mordec, Chief Investment Officer of the bond division at Fidelity International, said on the 2nd that hedge funds, which are gaining prominence in the European government bond market, are a major factor behind the recent selling of French government bonds. "In the current French market, the presence of hedge funds has become very large. Looking at fund flows, perhaps 50% of the current spread movement is due to hedge fund activity," she said. French government bond prices have plunged and yields have risen, as concerns over France's fiscal situation intensify alongside a global bond selloff, prompting investors to move funds into safer European government bonds. According to LSEG data, the spread of the French 10-year yield over Germany widened to 150 basis points on the 2nd, expanding by about 50bp over the past week, and is set to mark the largest weekly increase since November 2011. Hedge funds have become major players in the European government bond market as traditional investors such as pension funds reduce their holdings, with some estimates putting them at about half of trading activity. Le Mordec said, "I am not worried that the situation in France will descend into a crisis. But the market is trying to gauge the political situation and is warning politicians that they need to be careful in managing fiscal affairs." Regarding the possibility that the European Central Bank could support the French government bond market through its emergency TPI measure, she said, "If the ECB judges that there is a threat to financial stability, it will use whatever tools are available." However, the prevailing market view is that the likelihood of TPI being activated at this point is low, since France does not meet several of the key fiscal and deficit criteria required as conditions for support.
FR-10Y.GB · Monetary · Negative French 10Y yields surged and the spread over Germany widened to 150bp as hedge-fund selling and fiscal concerns drove a global bond selloff, pushing the yield up (bond price down).
ING: French Debt Sell-Off Clouds ECB Rate Outlook, Weighs on Euro
ING's Chris Turner argues that the French debt sell-off has broken the narrative of ever-higher short-term rates and raised doubts about further European Central Bank tightening. The French risk premium is weighing on the Euro, according to Turner. The sell-off has cast doubt on the prospect of additional ECB rate hikes.
Investors dump French bonds and equities as public debt nears 120% of GDP
Investors are rushing to sell French bonds, equities and the euro amid concerns that the country's public debt is climbing toward 120% of gross domestic product, nearly double that of Germany, according to a Bloomberg report. The yield on 10-year French government bonds has jumped by more than 1 percentage point since June and stands at about 4.9%, close to its highest level since 2002, while the spread over equally dated German bonds has more than doubled since May to 141 basis points. The French government unveiled a draft budget on Thursday, October 1, proposing deep spending cuts to bring the deficit back to its original target of 5% this year, but the plan must pass through a highly divided parliament. Andrzej Szczepaniak, senior Europe economist at Nomura International, expects the French bond yield spread could widen to 200 basis points by the end of 2027. French Finance Minister Roland Lescure insists the government can still manage the situation.
Global bonds sell off sharply, pushing 10-year US yield to 5.34%, highest in 24 years
Global bond markets faced heavy selling pressure, driving borrowing costs from the United States, France and Britain to Japan up to multi-decade highs amid concerns over inflation, elevated energy prices and the prospect that interest rates may stay high for a long time. The 10-year US Treasury yield, a key gauge of global borrowing costs, climbed to 5.34% during trading, the highest since 2002, after posting its biggest quarterly rise since the start of the century in the three months through September, before bargain hunting helped the yield ease back to around 5.26% in late US trading. In France, the 10-year bond yield rose close to 5%, the highest since 2002, after the French bond market turned in its worst quarterly performance since 1987, while the yield spread with Germany sat near its widest since the eurozone debt crisis and the cost of insuring against a French default hit its highest since 2013. In Britain, the 30-year bond yield surged past 6%, the highest since 1998, and Japan saw government bond yields rise by double-digit amounts for a fifth consecutive quarter, something never seen before. The Institute of International Finance estimates that over the past year, developed economies paid more than 3.3 trillion dollars in interest on government bonds traded in international markets, more than the roughly 2.6 trillion dollars in estimated global AI spending, 3.1 trillion dollars in defence spending and 2.3 trillion dollars in clean energy. Investors are rapidly shifting their views, with the market expecting the Fed to raise rates at least three more times before mid-2027 and the ECB to raise rates another three times, by 0.25% each, also by mid-2027.
FR-10Y.GB · Monetary · Positive French 10-year yield rose close to 5%, highest since 2002, on inflation concerns and expectations of ECB rate hikes.
GB-30Y.GB · Monetary · Positive UK 30-year bond yield surged past 6%, highest since 1998, as markets expect rates to stay high for long.
JP-10Y.GB · Monetary · Positive Japan government bond yields rose by double-digit amounts for a fifth consecutive quarter amid global inflation and rate-hike expectations.
US-10Y.GB · Monetary · Positive US 10-year Treasury yield climbed to 5.34%, highest since 2002, after biggest quarterly rise this century on inflation and rate expectations.
Dollar hits 17-month high against euro as bond selloff drives yields higher
The dollar strengthened to a 17-month high against the euro, amid a selloff in U.S. and European government bonds that pushed U.S. Treasury yields to new highs, while rising oil prices added to inflation pressure. The euro weakened below 1.123 dollars per euro for the first time since May 2025, and was last down 0.87% at 1.1229 dollars, having fallen nearly 2.5% in September, its largest monthly decline since July 2025. The yield on 10-year U.S. Treasury bonds touched its highest level since 2002 before falling more than 5 basis points to 5.239%, while French government bond yields jumped to a 14-year high on concerns about France's weak fiscal position, and German government bonds also faced selling pressure. Brian Daingerfield, head of G10 foreign exchange strategy at NatWest Markets, said the higher yields stemmed from concerns about fiscal policy, weakness in the French bond market, and worries about energy prices and rising inflation, with the market still expecting central banks including the Federal Reserve to continue tightening monetary policy. The pound fell 0.6% to 1.3186 dollars after dropping 2.1% in the past month, and was steady against the euro at about 85.11 pence per euro, its weakest level since late June.
European Stocks Fall Again as STOXX 600 Drops 2.49% for the Month; French 10-Year Yield Posts Biggest Quarterly Rise Since 1987
In European markets on the 30th, the STOXX Europe 600 index closed at 634.89, down 0.50% from the previous day, falling 2.49% for the month in its first decline in six months and slipping 1.07% for the quarter. In London, the FTSE 100 fell for a third straight session, down 2.02% for the month, though it held a 1.04% gain for the quarter, while the mid-cap FTSE 250 rose 0.68% from the previous day, advancing for a fourth consecutive session. In eurozone bond markets, the French 10-year yield stood recently at 4.84%, up 2 basis points from the previous day, having touched 4.8485%, an 18-year high, with its September rise at 66.5 basis points, the largest since late 2022, and its quarterly increase at 119 basis points, on track for the biggest since 1987. The German 10-year yield fell 4 basis points to 3.57%, and the spread between German and French 10-year yields reached 125.90 basis points, the widest since June 2012. Among individual stocks, bakery chain Greggs rose 8.2% after raising its full-year profit outlook, and Saga climbed 22.8% after forecasting a sharp increase in profit, while the utilities index rose 1.67% as remarks by UK Prime Minister Burnham drew investor attention.
FR-10Y.GB · Monetary · Negative French 10-year yield hit an 18-year high of 4.8485% and posted its biggest quarterly rise since 1987, with the German-French spread at its widest since 2012.
DE-10Y.GB · Monetary · Positive German 10-year yield fell 4bp to 3.57%, a decline in the yield itself (bond price up) amid the French spread blowout.
Bank of France chief warns budget with spending cuts needed to avert sovereign debt crisis ahead of presidential election
Bank of France Governor Villeroy de Galhau said on the 25th that France must do everything possible to avert a sovereign debt crisis ahead of next year's presidential election, and that it would be wrong to expect the European Central Bank to come to the rescue. The yield on French 10-year government bonds has surged to 4.7%, the highest level since the 2008 global financial crisis, as investors demanded a higher premium amid fiscal and political uncertainty. Villeroy stressed that a budget involving spending cuts is needed to put the fiscal deficit back on a downward path precisely in order to prevent a sovereign debt crisis before the presidential election. The government is scheduled to submit its 2027 budget proposal to parliament on October 1, kicking off weeks of deliberation. While noting that the government has been able to raise funds in the bond market without problems, he warned that rising debt interest payments pose a risk of gradually squeezing public finances, and when asked whether the ECB could intervene if funding difficulties arose, he said that trying to rely on such an idea reflects flawed logic.
FR-10Y.GB · Monetary · Negative French 10Y yield surges to 4.7% on fiscal/political uncertainty and warnings of a sovereign debt crisis, pushing the yield higher (bond price lower).
Global Interest Rates Climb Sharply as US Long-Term Yields Hit 19-Year High
Interest rates are rising sharply around the world, and with inflation fears spreading on higher crude oil prices, the US long-term rate briefly touched the 5.22% level on the 24th, a 19-year high. Rates are also climbing in major European economies such as France and Germany. With tensions in the Middle East persisting, attacks on Saudi Arabia by Yemen's Iran-aligned Houthi militant group have intensified, crude oil futures are regaining upward momentum, and the major central banks of Japan, the United States and Europe are scrambling to contain inflation, having all raised rates in September. In the markets, expectations that the Bank of Japan and the US Federal Reserve will accelerate the pace of rate hikes going forward have fueled a view that rates will stay high, and in Japan, with the Takaichi administration leaning toward fiscal expansion, worries about deteriorating public finances are adding momentum to selling of government bonds. In the Tokyo market on the 25th, the long-term rate briefly rose to a 30-year high, but Finance Minister Satsuki Katayama said only that rates are affected by a variety of factors, including long-term ones, and that her ministry is doing what it can. Market participants point out that until the Middle East situation calms down, rates are likely to remain unstable.
US-10Y.GB · Monetary · Positive US long-term yield briefly touched 5.22%, a 19-year high, on inflation fears and expectations the Fed will accelerate rate hikes.
JP-10Y.GB · Monetary · Positive Japan's long-term rate briefly hit a 30-year high on BOJ rate-hike expectations and fiscal-expansion worries under the Takaichi administration.
DE-10Y.GB · Monetary · Positive German long-term yields climbing along with global rates amid inflation fears and central-bank tightening.
FR-10Y.GB · Monetary · Positive French 10Y yields rising as rates climb across major European economies on inflation concerns.
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Europe's bond yield divergence raises hidden market risk
A growing divergence in European government bond yields is raising a hidden risk for financial markets, with borrowing costs in major Western European economies climbing toward levels last seen nearly two decades ago, KB Securities said. Ten-year government bond yields in major Western European countries have already moved above their 2023 peaks and are approaching their 2007 highs, while the U.S. 10-year Treasury yield, although above 4.8%, remains below its 2023 peak. The more important concern is the widening gap between Western and Southern Europe: yields in France and Germany have risen sharply, while those in Spain and Italy remain below their 2023 peaks and have increased at a more moderate pace. KB Securities attributes the divergence to fiscal positions, with France and Germany expected to run budget deficits of about 5% to 6% of GDP next year, compared with 2% to 3% for Spain and Italy, which keeps the latter within the EU's 3% fiscal-deficit threshold. The divergence echoes the period before the 2011 euro zone sovereign debt crisis, but KB Securities does not see an imminent crisis, noting that the bigger risk could emerge when the economic cycle turns lower, making the next downturn a key test for European markets.
FR-10Y.GB · Monetary · Positive Yields rising sharply due to high deficits, approaching 2007 levels.
ES-10Y.GB · Monetary · Negative Yields remain below 2023 peaks but divergence with Western Europe noted; fiscal position better but still subject to market risk.
IT-10Y.GB · Monetary · Negative Yields below 2023 peaks and rising moderately; fiscal deficits lower, but divergence risk highlighted.
US-10Y.GB · Monetary · Negative US 10-year yield above 4.8% but below 2023 peak; divergence with Europe noted as risk.
France risks debt crisis as 10-year bond yield hits highest since 2008
France is facing the risk of a debt crisis as its 10-year bond yield surged above 4.13%, the highest since the 2008 financial crisis, amid public debt exceeding 115% of GDP and an upcoming 2027 budget battle. CNBC reported that the deteriorating fiscal position and political gridlock are raising concerns in the bond market. France, the EU's second-largest economy, has repeatedly breached the European Commission's deficit and debt framework, with a deficit of 5.1% of GDP last year. The IMF forecasts debt will rise to 118.5% of GDP in 2026 and exceed 120% in 2027. The French government will submit its 2027 budget plan to parliament by early October, amid political divisions and the 2027 presidential election, where Marine Le Pen is seen as a frontrunner. Analysts point to France as an example of public debt problems and warn of a bond market revolt if there is no serious fiscal adjustment. The market is watching late this year to early 2027 as a period of high volatility.
France is heading into a new season of political brinkmanship that will test investors' patience with a showdown over the country's towering debt, as a week that began with a post-holiday cabinet meeting ends with the first of several credit reviews. With parliament gridlocked, the budget for the euro zone's second-biggest economy is the most perilous of Emmanuel Macron's decade-long presidency, coming ahead of a two-round presidential election on April 18 and May 2. The country's 10-year bond yield is above 4% for the first time in nearly two decades, and the premium over German equivalents has widened to 86 basis points. The government warned it will be difficult to deliver on this year's plan to reduce the deficit to 5% of economic output from 5.1% in 2025, with debt around 117% of output and rising. Prime Minister Sebastien Lecornu said he won't propose new taxes for 2027, instead seeking "structural savings," but faces opposition from parties like the Socialists and pro-business groups. Failure to pass a budget before the election could force emergency legislation and blow out the deficit by at least an additional 0.5 percentage points, according to the General Inspectorate of Finance. Fitch Ratings is the first of several agencies to review France's credit score, having downgraded it last fall, and analysts warn of further downgrades if the deficit widens significantly.
Global bond selloff puts debt crisis front and center on Wall Street
A global bond selloff that pushed yields to two-decade highs has made government debt the main concern on Wall Street, overshadowing the AI boom. Yields surged in the U.S., U.K., France, Germany, and Japan as investors lost patience with persistent deficits and heavy government borrowing. The Treasury Department announced increased buybacks of long-dated bonds, but yields resumed their climb as investors doubted the move would stem the tide. Economists including RSM's Joseph Brusuelas and Capital Economics analysts said markets are now demanding higher term premiums for fiscal, geopolitical, and policy uncertainty, and warned that continued populist spending and tax cuts could eventually trigger banking or currency crises.
Bond markets around the world are facing one of the largest selloffs of long-term government bonds in history, pushing yields sharply higher and driving long-term borrowing costs for governments and the private sector to their highest levels in a decade. In the United States, the yield on the 30-year Treasury bond climbed to 5.32 percent, its highest level since mid-2007, while French government borrowing costs surged to 4.87 percent, the highest since 2008. German and UK government bonds also hit multi-year highs, and Japan saw yields rise close to 4.07 percent. The main factors driving this crisis include geopolitical risks that are pushing energy prices higher, persistent inflation that is forcing central banks to keep interest rates elevated for longer, and concerns about fiscal discipline among governments that are issuing large amounts of debt. At the same time, the structure of global bond holders is changing, as pension funds and the public sector reduce their holdings of long-term bonds and shift more into equity markets. This leaves the market more reliant on price-sensitive private investors, raising the risk premium for holding long-term bonds, and the higher interest burden will be passed on to businesses and households through more expensive borrowing costs.
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