For the first time since 2007, France’s bonds are now considered riskier than Spain’s—a symbolic reversal that underscores the extent of its financial market woes. With Prime Minister Michel Barnier’s newly formed minority coalition struggling to rein in deficits after inconclusive elections, the shift in status shows how traders are increasingly pricing France’s political chaos into its debt.

Just days after Barnier’s government was sworn in, the higher risk premium now demanded by investors for holding French bonds is all the more striking considering Spain’s historically lower credit rating. Once the poster child for Europe’s sovereign debt crisis, Spain has overtaken France in the market’s risk assessment.
French 10-year bonds traded at 2.98% last week, just above their Spanish counterparts. The yield has already surpassed that of Portugal and is now closer than it has been in over a decade to the returns offered by Italy and Greece—hardly the best company to keep.
This shift highlights how the appetite for one of Europe’s safest assets has soured amid months of political turmoil, raising the spectre that France could be lumped more permanently with countries typically associated with fragile public finances.

France has been in the eye of the storm ever since Emmanuel Macron attempted to stabilise the political landscape by calling for early elections in June. The gamble backfired, first when investors panicked over the possibility of the far-right seizing power, and then when the elections returned a deeply divided National Assembly, split into three factions, none of which could govern alone.
Macron spent the summer dithering over the formation of a government that a vote of no confidence wouldn’t immediately topple. Finally chosen, the cabinet consists of centrists and conservatives from Barnier’s party, which won fewer than 50 of the 577 seats in the National Assembly.

During the limbo of an interim government, France’s finances deteriorated further, with disappointing tax revenues and exceeding expectations in local government spending. The new administration must draft a budget in the coming days, as it faces a deficit this year that could surpass 6% of economic output.
Against this backdrop, the extra yield demanded by investors to hold French debt rather than safer German bonds has ballooned to around 82 basis points, up from less than 50 in June when Macron called the election.

Marine Le Pen’s National Rally, poised to play a key role in no-confidence votes aimed at toppling Barnier’s government, is keeping the pressure on by proposing legislation to roll back the pension reforms. While this strategy has little chance of success, it presents yet another challenge in the weeks ahead.
Any negative short-term political headlines in France, particularly around the budget or the repeal of pension reforms, could add momentum to this trend. Spain will continue outperforming France unless domestic Spanish conditions deteriorate significantly.

The previous government had pledged to bring it down to 5.1% this year and back within the EU’s 3% limit by 2027. Still, officials, including Bank of France Governor François Villeroy de Galhau, have warned that sticking to these plans would cause too much economic pain.
The new government is expected to present its 2025 budget around October 9, a week later than French law dictates. It has also delayed submitting its long-term fiscal plan to Brussels until the end of October.
New Finance Minister Antoine Armand said tough measures will be included in the upcoming budgets, primarily focusing on spending cuts. However, the government has also suggested exploring targeted taxes on the wealthy and large corporations—a clear departure from Macron’s approach over the past seven years.
Barnier will offer more clarity on his plans when he outlines his political programme in Parliament on October 1. This will mark the first opportunity for opposition MPs to call for a vote of no confidence.

The market’s changing view of French debt also reflects how investors have flocked to Spanish bonds, given the country’s improving economic outlook and a reduction in borrowing, which had ballooned during the previous decade’s debt crisis.
Earlier this year, 10-year Spanish bonds yielded over 40 basis points more than their French equivalents. Barclays strategists believe Spain should continue outperforming France despite the recent dramatic spread narrowing.
A record number of tourists, strong exports, and a rapidly growing population mean Spain boasts one of the highest growth rates in Europe despite the country’s fragmented government.