France announced that it will sell government bonds worth EUR300 billion (USD328 billion) next year. This is more than the EUR285billion sold in this fiscal year.
After months of political turmoil and fiscal strains, the move is a response to the current situation.
The bond proceeds will be used to finance the projected deficit in the budget of EUR136billion by 2025. This is EUR31billion less than last year’s deficit.
The bond issue target is in line with the expectations of financial analysts who anticipated a rise in borrowing because of the high volume and maturing bonds, as well as ongoing fiscal challenges.
After a period marked by political unrest and market turmoil, the French government is under increasing pressure to restore investor confidence.
The market demand is stable despite France’s political instability
France continued to issue bonds despite the unrest in France earlier this year.
The demand from investors for French government bonds has remained strong, and recent auctions have seen interest rates comparable to the levels before President Emmanuel Macron called for snap election in June.
Source: Bloomberg
According to the French Treasury, in 2025 approximately EUR175 Billion of bonds will reach maturity, an increase from EUR155 Billion this year.
The total funding requirement will be EUR307 Billion next year. This is slightly less than the EUR319 Billion needed by 2024.
The fiscal burden will increase as debt servicing costs rise.
France’s increasing deficit and borrowing costs
The French budget deficit is projected to increase to 6.1% of the GDP this year, before declining to 5% by 2025.
By 2029 the country intends to reduce its deficit below the 3% EU limit, which is two years behind schedule.
French borrowing rates have risen sharply due to the growing concern of markets over an ever-growing deficit.
The yields on French debt are now 77 basis point higher than Germany, and more in line with Spain’s lower rating.
Analysts believe that despite these challenges the bond market is resilient.
Reinout De Bock of UBS Group AG’s European Rates Strategy noted that, while the increased debt issue might cause concern, the amount of bonds redeemed next year will mitigate any impact.
De Bock stated in a Bloomberg article that he expected the France-Germany yield spread on 10-year bonds to be 75 basis points at year’s end.
Fitch Ratings will evaluate France’s creditworthiness in the next few weeks.
Fitch is scheduled to publish its most recent assessment of France on Friday. Moody’s, S&P, and S&P will follow in October and respectively November.
The post France sells EUR300 billion of bonds to fund 2025 budget amid fiscal and investor pressure may be updated as new developments unfold.
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