France has announced plans to sell 300 billion euros ($328 billion) of national debt next year, up from 285 billion euros this year.
The move comes as the country faces fiscal pressures and political instability following months of turmoil.
Proceeds from the bond issue will help finance an expected budget deficit of 136 billion euros in 2025, 31 billion euros less than this year’s shortfall.
The bond issuance target is in line with expectations from financial analysts, who expected borrowing to rise due to a large number of maturing bonds and continued financial difficulties.
The French government faces increasing pressure to stabilize its finances and restore investor confidence after a period of political uncertainty that rocked markets.
Market demand remains stable despite political instability in France
Despite political unrest earlier this year, France has continued to sell bonds without major disruption.
Investor demand for French government bonds remains strong, with recent bond auctions yielding interest rates similar to those before President Emmanuel Macron called snap elections in June.
Source: Bloomberg
Some 175 billion euros of bonds will mature in 2025, up from 155 billion euros this year, the French finance ministry said.
As a result, total financing requirements are expected to reach 307 billion euros next year, slightly below the 319 billion euros needed in 2024.
Debt servicing costs are expected to rise to 55 billion euros, further increasing the fiscal burden.
France’s budget deficit and rising borrowing costs
France’s budget deficit as a percentage of GDP is expected to rise to 6.1% this year and fall to 5% by 2025.
The country plans to bring its budget deficit within the European Union’s 3% limit by 2029, two years later than originally planned.
The widening deficit has heightened market concerns and caused France’s borrowing costs to soar.
France’s bond yields are now 77 basis points higher than Germany’s, more closely aligned with lower-rated Spain.
Despite these challenges, analysts believe the bond market will remain resilient.
Rheinout de Bock, head of European rates strategy at UBS Group, said while the increase in bond issuance may raise concerns, next year’s bond redemptions should cushion the impact.
“We expect the French-German 10-year bond yield spread to settle at 75 basis points by year-end,” Debock said in a Bloomberg report.
In the coming weeks, France’s creditworthiness will be assessed by Fitch Ratings, Moody’s and S&P Global Ratings.
Fitch, which downgraded France last year, is scheduled to release its latest ratings on Friday, with Moody’s and S&P to follow in October and November, respectively.
