French borrowing premium hits 2012 high as euro zone bond selloff deepens
French 10-year yields rose to 4.573%, pushing the spread over Germany to one percentage point, its widest since July 2012.
Euro zone government bonds came under renewed pressure on Friday, with the extra yield investors demand to hold French debt rather than German paper climbing to its highest level since 2012.
The premium on French 10-year bonds over their German counterparts reached a full percentage point, a threshold last crossed in July 2012. French 10-year yields rose 13 basis points to 4.573%, the sharpest weekly increase among G7 economies at 12.5 basis points, while two-year yields added 15 basis points to 3.536%.
The cost of insuring French debt against default also rose, with credit default swaps touching their highest since April 2025 at around 41.5 basis points — meaning protection on France now costs more than on any other developed economy.
The moves come as Prime Minister Sebastien Lecornu works to finalise a deficit-reduction budget for 2027, with bond market pressure mounting and households squeezed by the rising cost of living. Jefferies economist Modupe Adegbembo said the fiscal outlook offered few catalysts for improvement and that spreads would need to widen materially before turning constructive.
The pressure was not confined to France. Germany's 10-year yield rose 4 basis points to 3.52%, reversing the previous day's decline, after touching 3.5723% on Tuesday — its highest since June 2009. Italian 10-year yields added 9 basis points to 4.43%.
German two-year yields, the most sensitive to policy-rate expectations, climbed 5 basis points to 3.263%, having peaked at 3.3123% on Monday, the highest since September 2023. They were set for a sixth consecutive weekly gain.
The selloff followed a week of central bank action, with the US Federal Reserve and Bank of Japan raising rates after the European Central Bank's move, while the Bank of England held steady but signalled it could tighten if energy-driven inflation worsens. Money markets now price the ECB's benchmark rate close to 3% by year-end from 2.5% currently, and around 3.27% by March — implying three more hikes in six months.
Brent crude fell for a third day on easing supply concerns but remained above $100 a barrel. Mizuho strategists Evelyne Gomez-Liechti and Masayuki Nakajima noted that risks remain tilted towards higher inflation, with the bigger uncertainty being whether markets have already priced terminal rates that prove hard to deliver. They added that central bank blackout periods end next week, with around 18 speakers from the Fed, ECB and BoE due to appear.