French 10-year borrowing cost hits 5%, first time in 24 years

By Daniel Okafor

France pays more than 5% to borrow for ten years for the first time in 24 years. The yield on the benchmark 10-year bond, the obligation assimilable du Trésor (OAT) issued by the French Treasury, rose more than 8 basis points to 5% in morning trading before easing to 4.99%, as political turmoil and a missing budget spooked financial markets.

The move came with some civic buildings still smouldering from recent riots. Investors dumped French government paper, pushing up the interest rate Paris must pay on new debt, in the second largest economy of the eurozone.

Why is France paying crisis-level rates?

Two forces are working at once: a parliament that cannot pass laws, and streets that keep burning.

The French government has yet to pass its budget for next year. No single party has controlled parliament since President Emmanuel Macron called a snap election in 2024. That gridlock has blocked his plan to raise the pension age from 62 to 64 and a series of measures designed to reduce or redirect state spending.

The fiscal numbers explain the market's nerves. France's budget deficit ran at 5.1% of GDP in 2025. Its debt pile stood at 115.6% of GDP. Forecasts show both rising in the current financial year without remedial action, according to the figures cited in market commentary on the sell-off.

What happened in the streets?

The protests began in September with students demanding extra funds for mould- and rat-infested schools, a lack of teachers and large class sizes. They evolved into wider demonstrations about the rising cost of living.

The response escalated the conflict. Initially calm protests were often met with aggressive police tactics, sparking riots in many towns and cities. Stores such as Louis Vuitton were looted. Protesters set fire to the town hall in Limoges.

How are lenders reacting?

International lenders have grown reluctant to finance Paris. Some accuse the government of being "fiscally incontinent". Japanese fund managers have notably withdrawn from lending to France. Those that remain demand a higher price for their loans, especially for longer maturities — which is precisely where the 10-year OAT yield now sits at 5%.

The pressure extends beyond French bonds. Matthew Ryan, head of market strategy at the currency trading and payments platform Ebury, said the turmoil is dragging down the euro against other major currencies.

"The euro continues to lag most major currencies as the political risk premium in France looks unlikely to fade any time soon," Ryan said. "It remains unclear whether the 2027 budget will clear parliament, and even if it does, it seems set to be so riddled with concessions to both the left and the right that the deficit problem is left insufficiently addressed."

What does this cost France?

Every basis point matters at France's debt level. With debt at 115.6% of GDP and refinancing needs concentrated in longer maturities, a 5% yield means Paris pays roughly twice what it did in calmer years of the euro era for decade-long money. Japanese lenders pulling back narrows the buyer base. The lenders who stay price the risk into the term premium on longer loans.

The comparison is stark: 5% is a level France last saw 24 years ago, before the euro had established its low-rate reputation. Markets are now pricing French political risk the way they price emerging-market fiscal disputes.

The mechanism is simple. Gridlock blocks the budget. The blocked budget leaves the deficit untouched. Lenders see no fix and charge more. Higher yields raise doubts about the deficit further. The next test is whether the 2027 budget clears parliament at all — and Ryan's assessment suggests that even success may not resolve the deficit problem.