Could France be a riskier bet than Croatia? The bond market will have a say in 2025

Paris: French 10-year bond yields are climbing ever higher, showing a mounting concern for the country’s finances. But does the current pricing spell trouble for the country’s future debt servicing?

According to the cost of servicing their debt, Cyprus, Spain and Croatia appear to be less risky investments in the bond market, than Europe’s second-biggest economy France.

The Eurozone sovereign bond market has been going through a transformation over the last year.

“Generally speaking, there’s been a lot of decline in yields across the euro area”, said Frank Gill, Managing Director and EMEA Sovereign Specialist at S&P Global Ratings to Euronews Business, adding that “the big exception is France”.

Some of the biggest surprises came from the bond market of the so-called periphery countries in the bloc, that struggled with unsustainable debts right after the financial crisis in 2008, including Portugal, Spain and Greece. Nowadays, most of them have to pay less to service their debts than the long-time favourite France.

One of the reasons is that these countries have put their debt on a sustainable path, with a backdrop of low inflation and high growth.

“Some of these countries with large tourism sectors which have been posting very high growth rates, very strong labour markets, and they are operating budgetary surpluses, including Portugal, Greece, even smaller economies like Cyprus”, said Gill. “They’re paying down debt. So the the absolute amount of debt in the market is declining. And I think that explains why, the ten-year yield of Greece declined over the last year by 0.5%.”

This trend is probably going to continue in 2025. “I think if these countries continue to post budgetary surpluses, meaning their overall level of debt is declining and is declining very rapidly over GDP because GDP is increasing quickly, then I think you will continue to see a convergence of their yields towards German yields”, said Gill.

Europe’s second-biggest economy kept drawing unwanted attention this year, with the bubbling political turmoil, the last chapter of which led to the country concluding the year without a valid new budget for 2025.

For now, a special law allows public services to pay salaries and collect taxes, otherwise, the government needs to comply with the 2024 budgetary ceiling, until a new budget is approved.