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- French government bond yields soared on Wednesday as pressure on the government intensified ahead of budget talks starting next week.
- Student protests, due to restart on Thursday, underline a growing political and economic challenge facing the French government.
- Market watchers do not expect pressure on French assets to ease anytime soon.
Outgoing French Prime Minister Sebastien Lecornu delivers a statement at the Hotel Matignon in Paris, on Oct. 6, 2025. Stephane Mahe | Afp | Getty Images
France’s student protests took a breather on Wednesday after weeks of unrest, but market pressure on the French government intensified ahead of crucial budget negotiations due to start next week.
The student rallies, now stretching into their third week after violent clashes with police, mass school closures and thousands of arrests, are expected to resume on Thursday. What began as a Parisian student protest pressuring the government to address teacher shortages, lengthy timetables and derelict schools has evolved into a nationwide movement that has garnered support from people of various ages.
Prime Minister Sébastien Lecornu said Wednesday morning that officials would use the pause in demonstrations to open dialogue with high school students. He is due to address the nation on Wednesday evening.
Students gather during a demonstration near Lycée Deodat high school in Toulouse, south-western France, on Oct. 1, 2026. Ed Jones | Afp | Getty Images
“The demands [of students] are numerous and vary from one high school to the next. They must be assessed objectively, school by school,” he said in a post on X on Tuesday. “Substitutes, the state of the buildings, guidance, organization of school time, high school democracy: all topics must be put on the table.”
But he added that conversations must be had “without giving in to politicized manipulations.”
Lecornu’s government has accused radical-left party La France Insoumise (LFI) of hijacking the student movement. Some of the party’s sitting politicians have publicly backed the student protests.
LFI did not respond to CNBC’s request for comment.
French budget deadlock
The unrest in France has highlighted and intensified the economic and political challenges facing the country.
In the coming weeks, the French government faces tough budget negotiations, during which it must convince lawmakers in the politically divided National Assembly — which includes the far-right National Rally, the left-wing New Popular Front and Lecornu’s center-right grouping — to agree to a fiscal adjustment worth tens of billions of euros.
Since France’s July 2024 snap election delivered no parliamentary majority, budget disputes have sparked political discord, with two administrations being ousted in no-confidence votes. It took incumbent leader Lecornu until February this year to pass the 2026 budget, which he only achieved by drawing on emergency legislation that allowed him to bypass parliament and force the policy through.
Further political shifts are expected after the presidential election next spring, with far-right candidate Marine Le Pen currently the frontrunner. In a speech on Tuesday, Le Pen pledged to reduce France’s deficit to 3% within 18 months of the election should she win – but critics questioned whether her plans were feasible. The French budget deficit topped 5.1% of GDP last year.
The political instability, deficit concerns, and doubts over the minority government’s capacity to deliver the necessary scale of spending cuts have also rattled investors trading French government debt. Yields on French government bonds, known as OATs, have surged to multi-decade highs this year, sparking concerns the country could be headed toward a sovereign debt crisis.
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French government bonds
Bond yields and prices move in opposite directions.
Pimco weighs ‘critical’ situation
Bank of France Governor Emmanuel Moulin, who sits on the European Central Bank’s Governing Council, threw cold water on the notion that France might soon need assistance from European Central Bank policymakers in Frankfurt.
The ECB does not exist to “deal with the fiscal problems” of individual countries, he told radio station France Inter.
“It’s there to fight inflation and keep inflation around 2%,” he said. “So the conditions are not met today for an intervention from the ECB.”
The yield on France’s benchmark 10-year OAT gained 16 basis points on Wednesday, rising sharply after a decline the previous day. The 10-year OAT’s yield has surged by more than 100 basis points since the start of the year.
Emmanuel Roman, CEO of asset management giant Pimco, told French newspaper Le Monde that “the situation is critical” in France’s bond market, which he said was “sending a serious signal” to the government.
“The deficit needs to be reduced – a budget is needed, and that budget needs to be passed,” he said in an interview published Wednesday. “France needs a credible political policy, which it currently lacks.”
Roman added that the country “needs reforms like the ones Italy had to implement when its back was against the wall.”
“There’s an urgent need to take serious measures,” he said.
Anthony Brinkman, a high-yield portfolio manager at Principal Asset Management, told CNBC in an email Wednesday that French debt markets could still come under more pressure.
“We remain cautious on French credit: the OAT sell-off does not look exhausted, and we do not believe the curve has found its clearing price,” he said.
“This looks like a repricing of deteriorating fundamentals, rather than a disorderly market move. A worsening deficit and debt-to-GDP outlook have driven incremental widening as negative news lands. With upcoming reviews from both Moody’s and S&P in Q4, rating downgrades could amplify selling pressure.”
