France’s borrowing costs have climbed to their highest in nearly a quarter-century as the country endures its worst social unrest in decades, with bond investors demanding far more to lend to the French government, Al Jazeera reported on Tuesday. The message from the market is blunt enough: lending to Paris now looks like a riskier proposition, and the price of that risk keeps going up.
Yields on the benchmark 10-year government bond were trading near 4.8 percent in mid-October, about 1.4 percentage points higher than a year earlier, according to data compiled by Trading Economics. On Monday alone the 10-year yield jumped more than 10 basis points as the unrest deepened, with two-year and 30-year yields also climbing, CNBC reported.
A bond yield is, in effect, the interest rate a government pays to borrow. When investors grow nervous and sell the bonds, prices fall and yields rise, since the two always move in opposite directions. Every uptick makes new borrowing, and the refinancing of old debt, that much more expensive.
The climb has been building for some time. French 10-year yields first pushed above 4.1 percent in late August, their highest since 2008, as running battles over the country’s debt and budget deficit shook investors, CNBC reported then. The unrest has only tightened the pressure since.
France is far from the world’s most indebted government. Both the United States and Japan owe more, as Al Jazeera noted, yet it is Paris that bond markets have chosen to punish, a sign of how quickly confidence can drain away when lenders start to doubt a government’s grip on its finances.
The mathematics tends to feed on itself. The higher the yields climb, the steeper the interest bill France faces, and the larger the deficit that unsettled the market in the first place.