France's 10-Year Yield Tops 5% for First Time Since 2002

France's 10-year borrowing cost breached 5% on Wednesday and kept climbing Thursday, hitting 5.089% in early European trading. That's the highest reading since July 2022 and the first time the French yield has crossed 5% since 2002.

The yield on the obligation assimilables du Trésor (Oat) jumped 9 basis points on the day. It also rose above the equivalent US Treasury 10-year for the first time since 2013. The spread between French and German 10-year debt, the standard gauge of risk investors attach to French paper, hit its widest level in nearly 15 years.

The selling reflects a market losing patience with Paris. President Emmanuel Macron's government can't pass a 2026 budget, can't push through a planned hike in the state pension age from 62 to 64, and just watched a week of street protests turn violent across four major cities.

What is the bond market pricing in?

Three numbers frame the sell-off. France's budget deficit ran 5.1% of GDP in 2025. Its debt pile sat at 115.6% of GDP. The pension overhaul meant to shore up the long-term balance sheet sits frozen in parliament. Investors are running the math.

Tens of thousands marched peacefully to demand more teachers and repairs to decrepit schools, but separate groups clashed with police in Paris, Bordeaux, Nice and Marseille, the interior ministry said. Public buildings were attacked, thousands of shops and businesses were looted, and nearly 2,400 people were arrested. Higher inflation tied to the war in Iran is squeezing budgets that already look stretched.

The takeaway: bondholders see no near-term path to a smaller French deficit.

Is the sell-off spreading beyond France?

The widening isn't staying inside French borders. Deutsche Bank market strategist Jim Reid flagged parallel moves across southern Europe: Italy's 10-year spread over German bonds widened 3.8 basis points to 116 basis points. Spain's widened 3.1 basis points to 66 basis points, the widest since June 2025.

"Among others, the Italian 10-year spread over [German bonds] widened 3.8 basis points to 116 basis points, while Spain's widened 3.1 basis points to 66 basis points, marking its widest level since June 2025," Reid said.

When peripheral spreads blow out alongside a core market, the ECB's options narrow. That's the cross-border flow European policymakers watch most closely.

What is the ECB's bind?

The European Central Bank meets next week. ING's Carsten Brzeski sees a rate-setting council that wants to keep tightening but can't, because bond markets have already done the work for it.

"Rising yields had reinforced the European Central Bank's 'restrictive' monetary policy stance before its interest rate decision next week," Brzeski said. The ECB last lifted its key rate to 2.5% in September.

"The ECB is very likely to stay on hold next week and will delay any next rate hike decision to December," Brzeski said. "Any solution to the current French fiscal woes could bring some relief to bond markets and allow the ECB to continue hiking rates. Without any solution, bond markets have taken over the ECB's role, making rate hikes less likely."

In plain words: until Paris produces a budget the market believes in, the ECB's next move will be set by French politics, not eurozone inflation prints.

What happens next?

The next test lands at next week's ECB meeting. A hold is now priced in. The variable is whether the council's statement names French volatility. The bigger variable is whether Macron can round up enough votes to pass a 2026 budget that cuts the deficit enough to satisfy bondholders. Without that, 5.089% on the Oat is the floor, not the ceiling.