France’s 10-year OAT yield has climbed above 4.10%, its highest level since October 2008, amid a broad global selloff in fixed income. The move reflects renewed inflation concerns driven in part by rising oil prices, following the expiry of the US-Iran ceasefire and Tehran’s threat to adopt a more aggressive military posture, which together are pushing borrowing costs higher.
France is also contending with mounting domestic fiscal pressures. Interest payments reached €34.5 billion in the first half of the year, up 19% from a year earlier, while public debt already stands at about 118% of GDP. Even if the government succeeds in capping the budget deficit at roughly 5% of GDP this year, debt levels are expected to continue rising over the coming years.
At the same time, weaker US economic data have tempered expectations for additional near-term tightening by the Federal Reserve, in contrast with increasingly hawkish market expectations for European monetary policy.
