🚨🇫🇷 France is now borrowing at more than 5% over 10 years and consequences could be far more significant than markets currently anticipate - FT 📈 Despite rising bond yields, France remains far from a sovereign debt crisis but the spread between French and German 10-year bonds is hovering around 170 basis points. Moreover, when we convert five-year sovereign yields into US dollars using cross-currency swaps, stripping out much of the difference in monetary policy expectations, French debt shows a synthetic yield above 6% compared with 5% for the US. Even though, this is not the rate at which France actually borrows, it reveals a significant deterioration in the compensation investors demand to hold French government debt. 💰 With an average debt maturity of more than eight years, France benefits from a substantial buffer as higher interest rates do not immediately affect the entire outstanding debt stock. However, this buffer only delays the problem and doesn't eliminate it. The French government's interest bill is expected to rise from €62.6 billion in 2026 to €72.9 billion in 2027. With €340 billion in medium- and long-term bond issuance planned for 2027, net of buybacks, a sustained 100-basis-point increase in borrowing costs could translate into several billion euros in additional annualized interest expenses on new issuance alone. If rates remain elevated long enough, this could structurally weaken France's public finances. 🇪🇺 France's situation remains nowhere near the European sovereign debt crisis of 2011–2012, when Greek bond spreads reached several thousand basis points. However, France doesn't need to experience a Greek-style crisis to suffer a major deterioration in debt sustainability. Unlike the US, whose interest burden as a share of GDP is actually higher, France does not independently control its monetary policy. Some argue that worsening French economic conditions would push the ECB to act but there is no guarantee that a confidence crisis specific to France would trigger monetary easing across the entire eurozone. ⚠️ When borrowing costs remain elevated while economic growth is weak and primary deficits persist, stabilizing public debt requires fiscal adjustments. Those adjustments can themselves weigh on economic growth making fiscal consolidation even harder. France still has full access to capital markets and government bond auctions continue to attract investors but we may face a fiscal credibility crisis that gradually becomes entrenched. ➡️ I believe the main risk is that investors continue to finance France at a price that makes its fiscal trajectory increasingly difficult to sustain, and that doesn't require a spectacular sovereign debt crisis. *FT link: ft.com/content/9aa4549e-26f4…