Could France be a more risky investment that Spain?

For the first time since the 2008 financial crisis, the French yields traded slightly above the Spanish for a brief period, at 2.97%, on Wednesday, according to LSEG data.

Spanish bonds are traditionally seen as a riskier investment than French ones.

The rising premium to hold French debt, already higher than Portugal’s, shows waning investor confidence as Europe’s second-biggest economy is facing pressure to present a budget, as well as long-term solutions to fix its mounting debt. 

Prime Minister Michel Barnier’s new government struggles amidst political turmoil to close a gaping hole in the budget as the public deficit is expected to exceed 6% of GDP this year, levels not seen since 1945, apart from the financial crisis of 2008 and Covid in 2020. 

Swelling further investors’ doubts that France will be able to present a budget mandated by the EU, the French government is requesting more time from the European Commission to submit its plan for meeting the EU’s fiscal rules.

In 2023, France has already struggled to keep its finances under control, presenting a high deficit, of 5.5% of the GDP. The European Union requires that to be tamed to 3% by 2027.

PM Barnier is going to present the government’s budget to the parliament on the 1 October.

Meanwhile, Spain is showing promising signs of raising investors’ trust, with the Bank of Spain recently raising its growth forecast for this year by 0.5% to 2.8%. However the country’s debt, though decreased in July in a monthly comparison, is still flirting with levels of 108% of GDP.

The two countries’ bonds’ yields traded lower on Thursday, but at midday, the French 10-year-old’s premium was still around 2.96% while the Spanish was 2.95%, according to Bloomberg.