#MacroFriday: Le Spread Rising on French Political Chaos
Not for its Riviera this time, but for its yields. As we noted in the last #MacroFriday before the break, Europe’s yield curves have continued to steepen this year, and France stands out as rising political uncertainty pushes up borrowing costs. Its 10-year yield is back near 3.5%, and the spread between French and German 10y government bond yields (‘Le Spread’) around 0.8%.
Recall 2024: Le Spread jumped to its highest level since the Eurocrisis after President Macron called early parliamentary elections and, months later, the Barnier government was ousted. The formation of the Bayrou government cooled things a bit…until now.
Premier Bayrou has called a confidence vote on September 8 to secure support for deficit-cutting measures. The deficit was 5.8% of GDP in 2024 and, absent policy change, is projected to hover near that level in 2025 and 2026. Bayrou’s mix of tax rises and spending cuts faces thin parliamentary backing and a no-confidence outcome is likely. This could reignite political turbulence, prompting investors to demand a higher risk premium and pushing French borrowing costs higher.