French bond market sell-off intensifies, high-debt eurozone countries under pressure

(1) The yield on France's 10-year government bonds has surpassed 5%, setting a 24-year high. The yield spread over German government bonds has widened to nearly 180 basis points, marking the broadest level since the peak of the European debt crisis in 2011. (2) Massive fiscal deficits, political stalemate in Paris, and the most severe social unrest in years have become catalysts for mounting market concerns. The pressure is spreading to Italy, Belgium, and even Greece, with protest activities emerging in both Belgium and Italy. (3) This week, Italy’s 10-year government bond yield rose by 14 basis points to 4.616%, nearing a three-year high. The Belgium-Germany 10-year bond yield spread climbed to 109 basis points, setting a 14-year high. By the end of 2025, Belgium's debt-to-GDP ratio is expected to reach 108%. (4) BlueBay's Head of Strategy Bell stated that the market fears high borrowing costs may ultimately force refinancing at even higher interest rates. He expects the France-Germany spread may exceed 2%, but not reach the 6% and 5% levels seen during the European debt crisis for Italy and Spain versus Germany. (5) Bell also mentioned that the market worries French politicians may be reluctant to promote sustainable debt reforms due to protests. Belgium’s 10-year yield once climbed to 4.54%, the highest since early 2012, with the cost of hedging default risk reaching its highest point since April 2020. (6) Italy’s elections next year also cast uncertainty on its plans to reverse the rising trend in public debt.