European bonds caught a mild bid on Monday while US markets sat out Columbus Day, but the relief was thin. The 10-year German Bund yield fell 2.6 basis points to 3.463% and the French OAT declined 1.5 basis points to 4.847% in early trade, according to Tradeweb quotes carried by Dow Jones, putting the OAT-Bund spread at roughly 138 basis points. That is a touch inside the 141 basis points that followed the October 1 budget presentation and the 159 basis point intraday peak of October 2, the widest since the 2012 euro crisis, yet still wider than Italy’s spread to Bund, a line France crossed this month for the first time in the modern era.
The calm is tactical. France’s National Assembly opens debate Tuesday on the draft 2027 budget presented October 1 by Prime Minister Sebastien Lecornu: a 54 billion euro adjustment, built on frozen public-sector wages and pensions, targeting a deficit of 5.0% of GDP in 2027 against 5.4% expected this year. Markets have treated the arithmetic with open skepticism: without the measures, the deficit would hit 6.5% of GDP, public debt is forecast to rise to 122% of GDP, and France plans a record 340 billion euros of medium and long-term issuance next year as sub-1% legacy coupons roll over near 5%. With no parliamentary majority, Continuum Economics sees weeks of horse trading toward a modified budget that may still not command a formal vote.
The political overlay keeps the pressure bid. Marine Le Pen’s National Rally has published a rival fiscal path, promising a deficit of 3.7% in 2027, a primary surplus by 2028 and the 3% Maastricht ceiling by 2032, with 140 billion euros of savings versus the 2026 baseline. The near-term calendar offers no relief valve: the revenue-side Part I vote is October 20, Moody’s reviews France on October 23 with the rating at Aa3 on negative outlook, and the ECB meets October 29 with markets pricing about an 80% chance of another hike by year end.