France’s sovereign risk premium hit a level not seen since the euro-area debt crisis. The spread between 10-year OATs and German Bunds widened past 140 basis points in the weekend news cycle, the highest since January 2012, while the French 10-year yield touched about 4.935 percent — its highest since 2002. German Bunds, by contrast, rallied to 3.46 percent: the divergence is France-specific.
The milestones keep stacking. Investors now demand more compensation to hold French debt than Italian debt — a reversal of the hierarchy that defined the 2010s. Vanguard, one of the world’s largest asset managers, called France a “degrading credit” in the Financial Times, citing persistent deficits, political uncertainty and the prospect of still higher borrowing costs. The €43 billion austerity package unveiled October 1 was sold anyway; high school students have joined the street protests; and lower-house budget deliberations begin mid-month with no government able to command a stable majority.
This is fiscal-risk repricing, not ECB-policy repricing — French OATs barely moved on Friday while the spread widened, meaning the market is pricing the state’s creditworthiness, not the rate path. With ECB accounts due Thursday and October 29 hike odds at just 26 percent despite 3.8 percent inflation, the tension is live: Lagarde argues long-end yields are doing the ECB’s tightening work, and France’s 140bp is the clearest evidence she is right — at a cost measured in sovereign credibility.