France’s 10-year OAT yield declined to 4.76%, its lowest level in nearly a week, mirroring a broader rally in European sovereign bonds amid a global flight to safety. The move followed a sharp equity sell-off driven by mounting concerns over the sustainability of AI-related gains, persistent inflation pressures, elevated interest rates, and high oil prices.
Despite the pullback, French borrowing costs remain close to their highest levels in more than two decades, as record-high public debt and political constraints continue to complicate efforts to restore fiscal discipline. The government plans to narrow the budget deficit to 5% of GDP by 2027, but parliamentary backing for substantial spending cuts remains uncertain in the run-up to next year’s presidential election.
ECB President Christine Lagarde sought to dampen expectations of direct central bank intervention in response to France’s mounting budget strains, emphasizing that “the primary and first solution lies at home in France, and it has to do with fiscal policies.” At the same time, markets broadly expect the ECB to deliver another interest rate increase in December.
