Overview
- A sharp selloff in French government bonds drove the 10‑year French‑German spread to about 150 basis points, the widest gap since the euro‑area sovereign crisis of 2011.
- The euro fell to its weakest levels in over a year as investors priced higher French borrowing risk and moved money into assets seen as safer.
- Markets have scaled back the chance of another European Central Bank rate increase this year because higher French spreads weaken the single currency and raise financial stress in the region.
- Investors also trimmed expectations for US policy tightening after a softer US payrolls report, which alongside the French shock lifted the dollar and pushed flows into German bunds and the Swiss franc.
- Traders and authorities are watching whether French stress spreads to other euro‑area debt and whether the ECB or national governments will intervene, a risk that could raise borrowing costs for households and public services if left unchecked.