French bond risk rises to highest level since 2012

⑴ The yield spread between French 10-year government bonds and German government bonds has exceeded 120 basis points for the first time in 14 years, as political uncertainty and accelerating inflation put pressure on French debt. ⑵ This move comes as France prepares to issue a record €340 billion in bonds in 2027, with this year’s deficit expected to account for 5.4% of GDP. ⑶ French government bonds currently yield 22 basis points more than Italian government bonds, an unprecedented reversal in the euro era. ⑷ Overall, market sentiment is dominated by French fiscal and political risks. Going forward, attention will focus on the progress of the bond issuance plan and whether the spreads can stabilize.