France's borrowing costs climbed above 5% for the first time in 24 years as political instability and delays in passing a budget unsettled financial markets. The yield on the benchmark 10-year bond issued by the French Treasury rose more than 8 basis points to 5% in morning trading, before easing to 4.99%. This increase occurred amid ongoing civil unrest and the government's failure to finalize its annual budget.

Recent weeks have seen widespread protests across France, initially sparked by student demands for funding to address deteriorating school conditions, including mould and rodent infestations, insufficient teachers, and overcrowded classrooms. The demonstrations expanded to encompass broader grievances about the cost of living. In several towns and cities, protests turned violent, resulting in store break-ins, arson, and property damage. Incidents included looting at luxury retailers such as Louis Vuitton and the burning of a town hall in Limoges.

Since President Emmanuel Macron called a snap election in 2024, no single political party has secured a parliamentary majority. This gridlock has blocked proposed reforms, including raising the pension age from 62 to 64, and has hindered efforts to restructure state spending. France's fiscal position remains strained, with a budget deficit of 5.1% of GDP and public debt equivalent to 115.6% of GDP in 2025. Projections indicate both figures will rise without corrective measures.

International lenders have grown cautious about financing France, citing concerns over fiscal management. Some institutions, including Japanese fund managers, have reduced or withdrawn exposure, while others have increased the interest rates demanded on loans, particularly for longer-term instruments.

Analysts attribute the market reaction to persistent political uncertainty. Matthew Ryan, head of market strategy at Ebury, noted that the elevated risk premium associated with France is likely to persist. He highlighted the ambiguity surrounding the approval of the 2027 budget and warned that even if passed, it may contain concessions that fail to meaningfully address the underlying deficit challenges. The euro's performance against major currencies has reflected these pressures, continuing to lag behind peers as political risks in France remain elevated.