• French Finance Minister Roland Lescure insists the bond market is functioning, despite rising yields and political uncertainty.
  • France's 10-year yield hit 4.917% and the spread over German bunds widened to 146 basis points, but Lescure says the government can still borrow.
  • The government denies changing its debt-issuance strategy, attributing reduced long-term borrowing to market conditions.

Lescure: 'No Issue Whatsoever' with Bond Issuance

French Finance Minister Roland Lescure pushed back against fears of a dysfunctional bond market on Wednesday, telling the BBC that investor demand remains intact even as borrowing costs climb. "I'm issuing bonds every two weeks, and there's no issue whatsoever," Lescure said in an interview, drawing a distinction between rising yields and a market that has stopped functioning. His comments come amid a sharp sell-off in French debt that has pushed the 10-year yield to around 4.917%, with the spread over German bunds widening to roughly 146 basis points—levels last seen during the eurozone debt crisis.

But behind the reassuring words, the government is quietly adapting. On Tuesday, the finance ministry denied any strategic shift in its debt-issuance plans, but acknowledged it has reduced sales of bonds with maturities beyond 30 years because of weaker demand. Officials described the move as a tactical response to market conditions rather than a wholesale overhaul. The clarification followed reports suggesting a pivot toward shorter-term borrowing, a sensitive topic given France's hefty refinancing needs.

Political Gridlock and Fiscal Slippage

The bond market stress reflects a confluence of global and domestic factors. A broad global bond sell-off has pressured yields worldwide, but France-specific concerns—persistent deficits, repeated fiscal slippage, and political uncertainty—have magnified the move. The government now expects this year's deficit to reach 5.4% of GDP, up from 5.1% last year, despite earlier pledges to consolidate. Public debt is projected at 121.7% of GDP in 2027, and the proposed budget aims for a 5% deficit—still above the EU's 3% limit.

The immediate test is whether Prime Minister Sébastien Lecornu can secure the 2027 budget in a divided parliament before the April–May presidential election. France's political instability dates back to Emmanuel Macron's 2024 snap election, which produced a hung parliament; two subsequent prime ministers were toppled over cost-cutting measures. The proposed €43 billion in spending cuts and tax measures face fierce opposition. Socialist lawmakers said the proposal offered no basis for compromise, while the Greens argued it places excessive burdens on vulnerable households.

Market Reaction and ECB Debate

As of October 8, the 10-year yield stood near 4.917%, a level that translates into €65 billion in debt-servicing costs this year—€4.5 billion more than initially planned. The euro fell to its weakest level against the dollar since May 2025 on October 5, amid French debt concerns and political turmoil in Spain. The turbulence also spilled over to Italian, Belgian, and Greek bonds, while German debt attracted safe-haven demand.

Lescure said France remains far from needing European Central Bank intervention, despite the yield spike. His stance contrasts with growing calls from candidates seeking to succeed Macron, who are pressing for bond purchases or even debt cancellation. The ECB's Transmission Protection Instrument—a bond-buying backstop established in 2022—has never been used, and its existence should not be read as a promise of support.

Analysts at ING (ING) assess that the proposed fiscal package would prevent the deficit from reaching 6.5% of GDP next year but would not stabilise public debt. They expect French bonds to remain under pressure given the difficult political process. The key risk is a reinforcing cycle: higher yields increase interest costs, worsening fiscal arithmetic and potentially prompting investors to demand still higher yields. Conversely, a credible, politically durable fiscal settlement could ease the France-specific risk premium.

A spokesperson for the finance ministry did not respond to a request for comment on the issuance strategy. A correction was made on October 8 to clarify that the yield premium over German bunds is approximately 146 basis points, not 1.46 percentage points as initially stated.