French sovereign debt came under renewed pressure on Monday, with the cost of insuring against a French default climbing to its highest level since 2013, according to XTB. The yield on the country's 10-year government bond rose to 4.860%, up 1.65% on the day and close to its annual peak of 4.994%. The five-year bond moved even more sharply, with its yield gaining 1.91% to 4.212% as investors questioned whether France's public finances can be sustained.
Why it matters
France is the eurozone's second-largest economy, and a sustained rise in its borrowing costs would ripple through European markets and put fresh strain on the single currency bloc. The moves reported by XTB suggest investors are no longer treating French debt as a near-riskless asset. The five-year credit default swap — insurance against a French default — now trades at 82.16 basis points in dollars, according to Bloomberg data cited by XTB, and the contracts have roughly tripled in value over the past three months.
The pressure is visible across the whole curve. The six-month contract sits at 30.3 basis points, the two-year at 52.9, and the ten-year at 113.9, XTB reports. Bloomberg's models put the implied five-year default probability at 6.89% on current CDS pricing — a small figure in absolute terms, but one that reflects a risk the market had largely dismissed until recently.
Equities have taken the hit alongside bonds. The CAC 40, France's benchmark index, was down 1.3% in the session, XTB notes.
Rating agencies hold their ground — for now
Despite the market moves, the major rating agencies have not downgraded France. Standard & Poor's and Fitch both keep the country's long-term debt at A+ with a stable outlook, while Moody's holds an Aa3 rating but with a negative outlook, according to XTB.
That gap between market pricing and agency ratings is the crux of the story. XTB warns that if the French government fails to present a credible fiscal plan, agencies could move to cut the rating — a step that would likely push borrowing costs higher still.
Politics drives the risk premium
The financial stress is unfolding against a volatile political backdrop ahead of France's 2027 presidential election. A recent Elabe poll cited by XTB puts Marine Le Pen of the National Rally in first place in the opening round with 31.5% of the vote — close to double the share of any other individual candidate.
Behind her, the field is tightly bunched: Jean-Luc Mélenchon of La France Insoumise and Édouard Philippe of Horizons are tied at 15.5%, with Raphaël Glucksmann of the Socialist Party just behind at 15%. The left-wing bloc as a whole — LFI, the Socialists, the Greens and the Communist Party — would draw 34.5%, above Le Pen's tally, but it is running divided, XTB reports.
Projected second-round matchups give Le Pen the edge over every rival. Her narrowest win would come against Philippe, at 52.5% to 47.5%, while she would defeat Mélenchon by 69% to 31%, according to the polling cited by XTB.
The candidates' fiscal programmes point in very different directions. Le Pen proposes an adjustment plan with €140 billion in cuts through 2032, aiming to bring the public deficit below the EU's 3%-of-GDP ceiling by 2030, backed by a budget "golden rule" put to a referendum. She has also said France could be "rescued" by the European Union through the ECB's Transmission Protection Instrument, a tool designed to stop financing costs for compliant eurozone members from spiralling. Alongside the austerity, she promises to reverse the pension reform and set the retirement age between 60 and 62, funded by €20 billion in efficiency savings.
Mélenchon, by contrast, proposes a consumption-led budget financed by higher taxes. His programme would raise €106 billion in additional revenue from capital, large fortunes and big companies, directing €82 billion to social spending — including a minimum wage of €1,700, more funding for health and education, and the repeal of the pension reform — with the remaining €25 billion used to pay down debt.
The tension has already spilled onto the streets, with protests against President Emmanuel Macron reported alongside the market moves.
What to watch
The immediate test is whether the government can produce a fiscal plan credible enough to satisfy the rating agencies and calm the CDS market. Without one, XTB's analysis suggests further downgrades — and higher borrowing costs — remain on the table.
