French Government Bonds Are Riskier Than 38% of French Corporate Debt as Yields Hit Multi-Decade Highs

French government bonds, known as OATs, are enduring their worst decade since 1803, with yields and spreads surging to levels that have prompted investors to price in a growing probability of sovereign default. France's 10-year OAT yield climbed to 4.989 percent, its highest since 2002, while the spread over equivalent German Bunds widened to 152 basis points, the most since the eurozone debt crisis of 2011. In a striking sign of how far sentiment has shifted, France's sovereign debt is now perceived as riskier than 38 percent of bonds issued by French companies, a reversal of the typical relationship between government and corporate credit.

Macquarie strategist Thierry Wizman attributed the spread widening explicitly to higher sovereign default risk, and France's five-year credit default swap rose to 81 basis points as markets priced in that risk. France's debt-to-GDP ratio is expected to reach 122 percent next year, up from 119 percent, while its budget deficit runs at roughly 5.4 percent of GDP. Analysts at ING forecast the OAT-Bund spread will remain between 100 and 125 basis points in coming months, and Natixis CIB strategist Theophile Legrand called OATs "pre-stressed," warning that the final months of 2026 and the first quarter of 2027 represent the most likely window for another bout of volatility as budget negotiations and presidential election dynamics collide.

French Finance Minister Lescure pushed back against the market narrative on October 8, stating that France is not in a dysfunctional bond market. The European Central Bank is seen as unlikely to intervene with bond purchases while it remains focused on inflationary pressures, with HSBC's European rates strategist Chris Attfield noting the move in the OAT-Bund spread has been "far larger than we would expect" given France's debt-to-GDP ratio.