France’s 10-Year Yield Spikes 3.51% After Fitch Downgrade - Sovereign Debt Jitters Rattle Markets

Fitch just handed France a brutal economic reality check—and bond markets are screaming.

The downgrade triggered an immediate 3.51% surge in France’s 10-year yield, exposing cracks in Europe’s second-largest economy. Investors aren’t waiting around for explanations—they’re pricing in risk right now.

Debt sustainability fears are mounting. Higher borrowing costs mean tougher budgets, slower growth, and more pressure on the eurozone’s fragile fiscal framework. Not exactly a confidence booster.

One cynical take? Traditional finance loves a downgrade drama—it gives analysts something to fret about while crypto quietly builds the next financial system. Sovereign bonds tremble; Bitcoin doesn’t blink.

Macron installs Lecornu while bond traders brace for more cuts

President Emmanuel Macron responded fast. Just hours after Bayrou’s collapse, he named Sebastien Lecornu, the former defense minister, as the new prime minister. That makes Lecornu the fifth person to hold the job in less than two years. Whether he can hold onto it is already up for debate.

Lecornu got zero breathing room. Protesters swarmed the streets on the same day he took office. More union-led strikes are on the calendar this week, with the biggest disruptions expected Thursday.

The demonstrations target the same economic reforms that helped sink Bayrou’s government. Analysts say Lecornu will face the same parliamentary opposition to the painful budget cuts needed to shrink France’s deficit.

The first thing Lecornu did was pull one of Bayrou’s most unpopular ideas — the plan to eliminate two public holidays. That proposal was supposed to save money but ended up triggering even more backlash.

ING analysts flagged that MOVE in a note Monday, saying Lecornu’s quick U-turn signals how toxic the spending debate has become.

Fitch warns deficit still too high as more reviews loom

Fitch didn’t just downgrade the rating and leave. They projected that France’s budget shortfall will still be 5.5% of GDP in 2025, only a slight drop from 5.8% in 2024.

That number is nearly double the projected eurozone median of 2.7%. The agency also forecast France’s total public debt will rise from 113.2% of GDP in 2024 to 121% by 2027.

The warning that there’s “no clear horizon for debt stabilisation” in the future spooked bond desks. And it wasn’t just about Fitch. There’s more on the way. Moody’s is scheduled to review France’s rating on October 24, and S&P Global Ratings is expected to follow up with its own decision on November 28.

Market watchers say investors were already pricing in more pain. In their note Monday, ING analysts wrote, “French sovereign bonds have been trading at spreads to swap rates consistent with multiple downgrades.”

They also said it wasn’t surprising that Friday night’s downgrade didn’t cause a full selloff, since many had already expected the move.

But ING emphasized what happens next depends on Lecornu’s ability to pull together a plan that the National Assembly can back.

“Locally, the focus is on how quickly, if at all, new French Prime Minister Sébastien Lecornu can focus the minds of a disparate National Assembly on the unpopular but essential path of fiscal consolidation,” the analysts wrote.

Even if things don’t spiral, investors aren’t ignoring the risks. ING told clients to watch the forex markets, adding that players will “keep one eye on French debt,” though their “core view… is that this is not going to broaden into another euro zone crisis.”

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