French borrowing costs near a 24-year high as the spread over Germany widens to the most since 2012

French bond yields neared a 24-year high on Tuesday as new protests loomed¹. Spreads between French 10-year debt and the German equivalent widened to their highest since 2012, following a weekend of violent protests in France⁴. It is the latest stage of unrest that has weighed on French markets since the protests began^1,4.

US Treasury Secretary Scott Bessent said he does not anticipate a spillover from the French bond market, which has seen surging yields³. Later in the day, French government bonds recovered as yields on eurozone and US peers fell⁵.

Why it matters to investors

The cost of France’s debt is now a budget problem in its own right. The French government expects to spend more than 90 billion euros ($100 billion) on debt interest payments next year, which is more than planned². A doom loop threatens France as populism confronts markets².

The selloff is concentrated at the long end. The French yield curve has steepened by approximately 130 basis points, a sign that investors are punishing the long-term fiscal picture and demanding more to lend for longer⁷. The surge in yields reflects a growing conviction in bond markets about the risks in French government debt⁶.

There is a counter-argument. One assessment holds that the region is better equipped to weather financial stress, with stronger banks and more powerful European Central Bank tools⁵. Bessent’s view that the turmoil will not spread points the same way³. Those are judgements, and the widest spread over Germany since 2012 shows markets are still charging France more for the risk^3,4.

The backdrop does not help. Oil prices advanced on Tuesday, with Brent hovering around a five-month high, and markets are weighing European Central Bank rate hikes¹. Both arrive while the French government is already paying more to borrow than it had planned^1,2.

What to watch

The first test is the scale of the next protests, which were looming as yields neared their high^1,4. The second is whether the recovery in French bonds late on Tuesday holds, or whether the spread over Germany widens further^4,5.

Investors will also watch the steepness of the French curve and the interest bill, already more than 90 billion euros for next year, as gauges of whether the doom loop is tightening^2,7.