Why are long-term interest rates rising in France?
Long-term interest rates in France are rising. The 10-year government bond yield benchmark, ‘TEC10’, reached 4.90% on October 2, 2026. Why is France’s interest rate attracting attention among countries that use the same euro? Tracing the background reveals that, in addition to inflation, the political power to rebuild public finances is being called into question.
First, a ‘rise in interest rates’ for government bonds does not mean that the interest on already issued fixed-rate bonds increases. It means that the price of government bonds in the market has fallen, and the yield for investors purchasing them has risen. This market yield also affects the conditions for the government’s new fundraising and refinancing.
This movement has factors common to all of Europe. Rising energy prices due to the situation in the Middle East have become an inflationary pressure, and the ECB raised its policy interest rate by 0.25% on September 10. If the outlook for future policy interest rates and prices changes, it also affects the yield required to hold long-term government bonds. In addition, the ECB is not reinvesting the principal repayments of the bonds it holds. As the central bank’s holdings decrease, the importance of private investors underwriting government bonds is also increasing.
Furthermore, what we want to pay attention to is the interest rate spread with German government bonds. On October 1, the yield spread between the 10-year government bonds of the two countries widened to approximately 1.33%. By comparing them with the same currency and the same maturity, it becomes easier to grasp the relative evaluation of France. While it is also influenced by supply and demand and liquidity, it serves as a clue to reading concerns about fiscal and political issues.
France’s government debt reached 119.0% of GDP at the end of June 2026. The government plans to reduce the fiscal deficit from 5.4% of GDP in 2026 to 5.0% in 2027. However, reducing the deficit is not the same as reducing the debt balance. Considering the relationship with economic growth, it is important whether there is a path to curb the expansion of debt.
What makes this path opaque is politics. In addition to a divided parliament, with the 2027 presidential election approaching, it has become difficult to build consensus on policies that involve burdens such as spending cuts. Even if a fiscal reconstruction plan is announced, it will be difficult to resolve investor anxiety unless there is confidence that it will pass through parliament and be implemented thereafter. In a situation without a stable parliamentary majority, concessions made to pass the budget could weaken the original reconstruction plan.
I believe that this rise in interest rates reflects the question of ‘how much debt has been increased’ as well as ‘whether the increase can be curbed from now on.’ Even if the necessary measures are known, if consensus cannot be obtained in parliament regarding the distribution of the burden, the policy will not move forward. The difficulty of that execution leads to the additional interest rate demanded by investors holding government bonds.
Furthermore, the rise in interest rates bounces back to the market through public finances. When government bonds from the low-interest-rate era reach maturity and are refinanced at higher interest rates, the interest payment burden gradually increases. The Agence France Trésor cites the increase in government bond redemptions as a major factor in the increased funding demand for 2027. It is necessary to be cautious of a cycle where the increase in interest payments squeezes the funds available for policy and makes fiscal reconstruction difficult.
On the other hand, according to the Agence France Trésor, there is demand exceeding the issuance amount for current government bond issuances. What is being questioned is how much interest must be paid to borrow funds and whether that burden can be sustained.
Going forward, in addition to the level of interest rates and the interest rate spread with Germany, I would like to watch whether the budget is passed and whether the deficit actually shrinks. While also considering the impact of rapid tightening on the economy, can they present a reconstruction plan that society can accept and sustain? France’s long-term interest rates indicate the necessity of considering fiscal figures and political execution power together.