France's 10-year yield touched 5.06%, its highest since 2002, and its premium over German debt widened to 164 basis points, the most since 2011. The move came on a morning when Treasuries and Bunds both gained.
France's bond market has been weakening for weeks. What made Thursday different is that it weakened alone.
The yield on the 10-year French government bond, the OAT, touched 5.0601% early Thursday, its highest level since 2002. The gap over equivalent German Bunds widened to 164 basis points, the widest since 2011, according to LSEG data. German 10-year yields fell 1.7 basis points to 3.407%, and U.S. Treasury yields dropped about 4 basis points. On a morning when investors were buying government debt, they were selling France's.
The French 10-year first crossed 5% on Wednesday, its first time above that level since July 2002, after rising 8 basis points on the day and more than 20 on the week. That weekly rise was the largest among the bonds of the world's biggest economies.
Why the decoupling matters
When French yields climbed alongside a global selloff in long-dated debt, it was hard to separate France's own risk from the worldwide rise in term premiums. Thursday separates them. The spread widened while havens rallied, so the extra yield investors demand is specific to France: a contested budget, street protests and a deficit running ahead of target.
Fitch Ratings, which rates France A+ with a stable outlook, said on Oct. 12 that it expects a 2026 deficit of 5.4% of gross domestic product, against the government's 5.0% target. At that time it described a spread of about 140 basis points as a historical high. The spread has since widened by roughly another 24 basis points.
Moody's is scheduled to review France's rating on Friday.
The counterpoint
The economy is not yet confirming the bond market's alarm. France's statistics agency, INSEE, said its gauge of manufacturing sentiment rose four points to 105 in October, above the 101 expected. Its all-sector business climate rose one point to 97, still below its long-run average of 100, and its employment gauge fell three points. On the same morning that French borrowing costs reached a 24-year high, manufacturers' sentiment improved.
That contrast frames the debate. One view is that France is being repriced as a fiscal outlier and that a downgrade would extend the move. Erik Liem of Commerzbank said on Wednesday, "We thus see little reason to turn optimistic on France." The other view is that a 20-basis-point week has already priced much of the bad news and that the economy, led by manufacturing, is holding up better than the bond market implies.
The CAC 40 fell 1.3% early Thursday.
What to watch
Friday's Moody's review is the immediate catalyst. After that, the European Central Bank meets on Oct. 29, where any comment on euro-area spreads will be scrutinized, and French unions have called a national strike for Nov. 5, according to reports. A spread that narrows after the rating decision would suggest the risk was priced; one that keeps widening while Bunds rally would mean investors are still reassessing France itself.