France is tapping the bond market for the first time in eight months, launching a syndicated bond sale as the new government struggles to secure support for a crucial budget, Bloomberg reports.
The move is a significant test of investor confidence amid ongoing political instability.
The French government is offering a new bond maturing in 2042, with pricing expected later on Tuesday. This marks the first syndicated offering since May of last year, when the country sold an inflation-linked bond. The previous offering came just weeks before President Emmanuel Macron’s shock decision to call early legislative elections, which threw France into a period of political turmoil.
According to sources familiar with the deal, the new bond is expected to price at some 10 basis points above comparable bonds. While debt syndications are typically more expensive than traditional auctions, they enable governments to rapidly raise large sums of capital while broadening their investor base.
France’s borrowing costs have risen significantly in the past six months, as investors have demanded higher yields to compensate for the perceived risk associated with the country’s political volatility. The previous government, led by Michel Barnier, collapsed after failing to gain parliamentary support for a budget that included substantial spending cuts aimed at tackling the nation’s large deficit.
Prime Minister Francois Bayrou is now facing similar challenges. He narrowly survived a no-confidence vote last week, with both the far-right and Socialist parties abstaining, despite having joined forces previously to oust his predecessor. However, the political landscape remains precarious.
The yield spread between French and German 10-year bonds, a key risk indicator, experienced its largest decline since October last week, stabilizing at approximately 78 basis points on Tuesday.
