France raised €10 billion on the bond market amid a budget crisis

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France has returned to the debt market with a new issue of 20-year government bonds worth €10 billion in order to gauge investor interest amid a prolonged budget crisis, reports Bloomberg. The deal is being carried out without an approved budget and at a time when the deficit risks rising above 5% of GDP — a level the Bank of France describes as a “danger zone” for the sustainability of public finances.

Placement and deal parameters

The placement was carried out through intermediary banks and became a record for France in terms of a 20-year maturity. Total demand amounted to around €106 billion, more than ten times the size of the issue, allowing the Treasury to tighten the pricing spread to five basis points over comparable bonds. At the same time, final demand was lower than last year’s record set during a similar placement.

Such bank-led deals allow governments to raise large sums quickly and broaden their investor base, but they usually come at a higher cost than standard auctions. The bookrunners for the placement were BNP Paribas, Citigroup, HSBC, JPMorgan and Societe Generale.

Budget crisis and fiscal risks

Fiscal uncertainty remains the key source of pressure. France failed to pass a budget by the end of last year, and Finance Minister Roland Lescure said that without an approved document the deficit in 2026 could reach about 5.4% of GDP. The authorities hope to reduce the figure to at least below 5% through parliamentary negotiations, but a failure to reach an agreement could lead to the government’s resignation and new elections.

Bank of France Governor Francois Villeroy de Galhau warned that keeping the deficit above 5% would push the country into a “danger zone” in terms of the sustainability of public finances. According to him, financial markets currently appear calm, but the risk of a sharp shift in investor sentiment remains.

Market assessment and yields

The risk premium on French bonds remains historically high, while yields on 20-year securities are holding at around 4.07%, close to the highest levels since 2011. Analysts note that French bonds look less attractive compared to swap instruments, which limits inflows of demand.

At the same time, the market remains relatively stable. In January, yields on 10-year French bonds fell below 3.5%, reflecting investor expectations that the European Central Bank will maintain a stable monetary policy in 2026. This shows that perceptions of risk related to French debt are shaped not only by fiscal factors, but also by the overall macroeconomic environment in the eurozone.

Comparison with other eurozone countries

The risk premium on French debt relative to German bonds remains elevated, despite easing from the peak levels of the past two years. Yields on French bonds are noticeably higher than German ones, reflecting the differentiation of risks within the eurozone.

In 2026, Italy and Portugal recorded record levels of demand for new government bond issues, while interest in French debt appears more restrained. This suggests that investors are differentiating risks across the region and view France’s fiscal situation as more vulnerable.

Another benchmark for the market was Ireland, which in the same period placed €5 billion in 10-year bonds maturing in 2036. Total orders exceeded €43 billion, below the record levels of 2020, but the deal went through with solid demand and yields set at 26 basis points above comparable swaps.

Additional context: politics and debt

Political instability around the budget is intensifying. In January, the French government twice survived no-confidence votes in parliament related to discussions over the 2026 budget. The cabinet remains in control of the situation, but Article 49.3 of the Constitution may be used to push through parts of the budget without a full parliamentary vote. This highlights the limited ability of the authorities to reach a compromise and increases uncertainty for financial markets.

Against the backdrop of budget risks, France’s public debt has reached a historical high. According to French media, its level stands at around 117.4% of GDP, the highest in peacetime history. The rising debt burden limits room for fiscal manoeuvre and increases pressure on the country’s rating outlook.

Credit agencies and analysts note that deficit reduction targets in the medium term are formally achievable, but their implementation will require strict budget discipline and political stability, which France has yet to secure.

Analysts at International Investment note that France is still able to attract large volumes of borrowing even amid a budget crisis. However, strong demand is accompanied by higher yields and a persistent risk premium, reflecting a cautious attitude among investors toward the country’s fiscal trajectory. Against the backdrop of more stable placements in other eurozone countries, political decisions on the budget are becoming the key factor determining the cost of borrowing for France in the coming years.