Historic Shift As French 10-Year Yields Surpass Italy’s

The hierarchy of European sovereign debts has just shifted. On Tuesday, September 9, France borrows at a higher rate than Italy on ten-year bonds. Less than 24 hours after the fall of the Bayrou government, the markets have decided: the French signature is no longer a refuge. This reversal, unprecedented in over a decade, marks a loss of confidence affecting the State’s budgetary credibility.

France Now Borrows More Expensive Than Italy

On September 9, the French sovereign yield curve officially surpassed that of Italy in the ten-year bond market, while French debt is forcing the ECB to print. The yield on French OATs (Treasury Bonds) reached 3.48 %, against 3.47 % for Italian BTPs.

This shift comes immediately after the fall of the Bayrou government and marks the first time since the European debt crisis that France inspires less confidence than Italy in the eyes of the markets. Investors take note of the current political paralysis and, above all, the chronic inability to consolidate public accounts.

This inversion reflects a profound revision of the hierarchy of sovereign risks within the eurozone. Several factors contributed to this turnaround :

• French political instability caused by the rejection of the vote of confidence, which brought down the Bayrou government on Monday, September 8 ;

• The absence of a credible budgetary recovery plan, as the project to reduce the deficit by 44 billion euros for 2026 has been effectively abandoned ;

• A negative perception of French efforts to consolidate public finances, despite high levels of savings (430 billion euros) ;

• Conversely, Italy is perceived as more rigorous, although it has a higher public debt (138 % of GDP compared to 114 % for France).

As highlighted by economist Christian de Boissieu : “the markets are impressed by the adjustment of the Italian public deficit, and concerned by our difficulty in significantly reducing ours”.

His assessment is supported by Philippe Crevel, who says “it is our political instability that is being penalized”. The image of France, long considered one of the pillars of stability in the eurozone, is now tarnished by a deficit of credibility.

Towards a Downgrade of the Sovereign Rating ?

Beyond crossing this threshold, another major point of tension concerns the rating of French debt. The Fitch agency is to announce this Friday, September 12, after market close, whether to maintain or downgrade the current AA- rating with a negative outlook, assigned since October 2024.

This level is today the last barrier before a downgrade to A+, a category which, if crossed, would force many institutional investors to mechanically disengage from French debt.

In previous communications, Fitch clearly warned : “a downgrade would be considered if there is an inability to implement a credible medium-term budgetary consolidation plan, notably due to political opposition or social pressures, but also because of significantly less favorable growth prospects”.

However, with the fall of the Bayrou government, the rejection of its 44 billion euro deficit reduction plan for 2026, and the lack of a clear budgetary direction ahead, the prospect of a downgrade has never been so serious.

A rating drop would lead to a mechanical increase in rates, already rising, thus further increasing the debt service, estimated at 62 billion euros for this year.

If the rating falls, the rising rate spiral could accelerate, further weakening the State’s financial position and limiting its budgetary room for maneuver. This situation risks worsening France’s market perception, at a time when financing needs remain structurally high.

In this climate of political uncertainty and distrust towards public debt, some institutional investors are beginning to turn to non-sovereign assets, seen as disconnected from state budgetary weaknesses. Bitcoin, in particular, is gaining attention as an alternative store of value. Its decentralized nature, limited supply, and resistance to political manipulation enhance its appeal to those fearing an inflationary spiral or debt restructuring.

The inversion of the yield curve between France and Italy marks a shift in sovereign risk perception, now combining budgetary doubt, political distrust, and institutional uncertainty. While Rome reaps the benefits of painful but effective reforms, Paris pays the price of stagnation and political disorder, which could lead to an IMF supervision. If Fitch were to decide on a downgrade in the coming days, the signal sent to the markets would be heavy with consequences.