FX.co ★ French 10-Year Yield Retreats From Near 14-Year High

In recent developments, the yield on French 10-year OATs declined to 3.52%, following a peak of 3.6% in late September, marking a 14-year high. This fluctuation occurs as the market evaluates the parliament's attempts to address France's escalating deficit spending. The government, led by Prime Minister Lecornu, proposed setting a cap on the 2026 budget deficit at 4.7% of GDP, which is marginally higher than the 4.6% target of the previous administration. This proposal includes substantial spending reductions, prompting significant opposition from those advocating for increased public service funding, higher taxes on the wealthy, and enhanced pensions. France's struggle to pass a budget controlling its growing deficit has led to OATs underperforming compared to other European bonds this year, causing the 10-year yield to occasionally surpass that of Italy's BTP, which is typically considered the standard for highly indebted markets. Additionally, pressures on bonds are mounting as persistent inflation in the Eurozone strengthens expectations that the European Central Bank will abstain from further rate cuts this cycle.