French Bonds Post Worst Decade Since 1803 as Debt Hits €3.5 Trillion
French 10-year bonds just logged their worst nominal-return decade since 1803, Deutsche Bank says, as the deficit hits 5.4% of GDP and debt reaches €3.5 trillion.
By Grace Kim
2 min read
Updated
What's News
- French 10-year OATs posted their worst nominal-return decade since 1803, per Deutsche Bank's Jim Reid and Henry Allen.
- France's budget deficit will reach 5.4% of GDP this year; the country last balanced a budget in 1974.
- French national debt has reached €3.5 trillion ($3.92 trillion); the 10-year OAT yields 4.920% vs Germany's 3.527%.
- The French-German 10-year spread hit its widest since at least 1990 during last week's turmoil.
- Since the start of 2024 the CAC 40 is up just 4% versus gains above 30% for the STOXX 600 and over 50% for the DAX.
France's 10-year government bonds have delivered their worst decade for nominal returns in 223 years, according to macroeconomic strategists Jim Reid and Henry Allen at Deutsche Bank. The last time French bonds performed this badly over a rolling 10-year window was in 1803 — a period when calculations still included the Reign of Terror, the violent phase of the French Revolution that ran from 1793 to 1794.
The historical milestone caps a brutal stretch for the eurozone's second-biggest economy. France's budget deficit is set to reach 5.4% of gross domestic product this year — significantly higher than any other EU member and well above the bloc's 3% ceiling. The country has not balanced a budget since 1974.
An aging population looks set to strain the public purse further, and since last month students have led wide-scale protests demanding higher investment in the country's high schools.
How wide has the spread over German bonds gone?
Bond traders have priced the fiscal risk in full. The spread between the French 10-year yield (TMBMKFR-10Y at 4.920%) and Germany's 10-year equivalent (TMBMKDE-10Y at 3.527%) stands at about 1.4 percentage points, approaching a high last reached in 2012.
According to Reid and Allen, the yield differential actually widened to its largest level during last week's turmoil in available Bloomberg data going back to German reunification in 1990.
What has happened to France's debt pile?
France's national debt has hit €3.5 trillion ($3.92 trillion). During the global financial crisis in 2008, France's debt-to-GDP ratio was broadly in line with Germany's and considerably below Italy's.
"But today it's far above Germany's and closing in on Italy's," Reid and Allen wrote in a recent report. "Outside of the temporary Covid spike, Italian debt/GDP has been stable for over a decade."
France now carries the highest bond yields compared with Germany, Italy and Spain, the strategists said.
Are French equities faring any better?
No. The benchmark CAC 40 has underperformed every major European index. Since the start of 2024, it has gained just 4%, while Europe's STOXX 600 has risen more than 30% and Germany's DAX has climbed over 50%.
The gap leaves France financing itself at a premium to peers it once outperformed on fiscal discipline. With no balanced budget in half a century, an aging population and protest-driven spending demands, investors see little on the horizon to reverse the pressure on French yields.
Original: wsj.com
More from Grace Kim
Show full bio
Market editor covering people, launches and day-to-day practice in entrepreneurship, startups and venture funding at Business Bearings.
952 articles