Economy

France-Germany bond yield spread surges on budget fears

The spread between French and German 10-year bond yields surged above 150 basis points, the widest since the euro-area debt crisis, pushing French borrowing costs close to 5%.

Investors are worried about France's budget deficit, debt trajectory and political fragmentation ahead of the 2027 presidential election. The euro came under renewed pressure from these risks, though EUR/USD rebounded slightly after the French government announced steps to cut the deficit, narrowing the OAT-Bund spread.

For beginners The spread between two countries' bonds is the extra yield investors demand for taking on more risk; a widening spread signals markets see the higher-yielding country (here, France) as a riskier borrower, which can weigh on its currency.