CDS France: Insuring French Debt Becomes Increasingly Expensive

<< How did you go bankrupt? In two ways. Gradually, then suddenly. >> French debt has long lived the first half of this quote from Ernest Hemingway's novel The Sun Also Rises. This week, markets began to echo the second half. On Friday, October 2, credit default swaps (CDS) for 5 years, contracts that serve as insurance against default, on France reached 81 basis points (one basis point equals 0.01%). This is their highest level in several years.

The Lecornu government has just presented a 2027 budget with 54 billion euros in savings. Investors are clearly expecting more than just savings on a spreadsheet: they want to see them voted on and then upheld. Key points of this article:

• Insuring French debt against default (the 5-year CDS) now costs 81 basis points, a level not seen in years.
• The rate spread with Germany (OAT-Bund spread) has reached 159 points, and France is borrowing even more expensively than Italy.
• The fragile 2027 budget and the presidential election in April 2027: investors doubt Paris's ability to stabilize its debt.
• Bitcoin has not yet benefited, but each additional basis point costs the state 31 million euros in interest per year.

CDS France at 81 Points: The Cost of Insurance Against State Bankruptcy

A CDS functions like an insurance policy. The buyer pays a premium each year, and the seller reimburses the loss if the borrower stops paying. With a CDS France at 81 points, protecting 10 million euros of debt costs 81,000 euros per year, or 0.81% of the insured amount. The price is steep.

This peak emerges from data from S&P Global relayed on Friday by Dow Jones. Let's keep a cool head. We are still far from the euro crisis of 2011, when insuring Italian or Greek debt cost several hundred points. Moreover, no one is betting on a Paris default by Christmas. The market is charging for a risk it completely ignored two years ago. And it is charging more and more. The cost of insurance against a French default (5-year CDS, in basis points) is at its highest since the early 2010s. The graph stops at 76 points, just before the peak of 81 points this Friday. Source: Bloomberg

OAT-Bund Spread and CDS: France Borrows More Expensively Than Italy

CDS do not move alone. The gap between the French 10-year rate and its German equivalent is called the OAT-Bund spread. The OAT (Obligation Assimilable du Trésor) refers to a loan from the French state, while the Bund is its German equivalent, considered the safest in the eurozone. The higher the spread rises, the more France pays compared to Germany. It crossed 100 basis points on September 18, a first since 2012, as reported by Boursorama at the time. It reached 159 points on Friday, October 2, the highest since November 2011 according to Dow Jones. The 10-year OAT was then at 4.99%. In practical terms, Paris pays nearly 1.6 points more than Berlin each year to borrow over ten years.

Italy, long the underperformer in the eurozone, is now borrowing significantly less expensively. On September 30, the Italian 10-year BTP (the equivalent of the OAT) closed at 4.60%. The OAT, on the other hand, finished at 4.84%, according to Il Sole 24 Ore. The underperformer has overtaken the top student.

Budget 2027 and Presidential Election: Why the Market No Longer Believes in France

Put yourself in the shoes of a bond manager, a professional who grows the savings of clients by lending to states. You lend to a state whose debt reaches 119% of GDP, meaning more than all the wealth produced by the country in a year. Its deficit hovers around 5.4% of GDP in 2026, nearly double the European limit of 3%. You then see this same state present 54 billion euros in savings before a Parliament without a majority. Out of caution, you buy a CDS France to hedge yourself. If all managers do the same, the price of this insurance rises.

The presidential election in April 2027 complicates everything. No party has an interest in voting for wage freezes or a lower pension increase six months before the election. Yet managers know this. They are less doubtful about France's solvency than about its ability to vote on a budget that stabilizes its debt. It is this doubt that the CDS France measures.

Bitcoin Facing the French Debt Crisis: The Safe Haven Will Wait

On X, the surge in CDS France has triggered the usual reflexes: debt collapses, buy bitcoin. The argument makes sense. An asset capped at 21 million units escapes any dilution: no public treasury can create more to settle its debts. It gains appeal when a G7 state's signature deteriorates.

The numbers still invite caution. Bitcoin was trading around $86,000 on Friday morning. It has gained 9.6% over a month but has fallen 28.5% over a year. Its rise is more due to the forced closure of short bets (liquidations of short positions) and the decline in U.S. interest rates than to Parisian jitters. Despite a CDS France at an all-time high, there is not yet a flight to BTC.

The real test will come well before the presidential election, at the pace of auctions, these regular sales through which the state borrows from investors. With public debt at 119% of GDP, France needs to borrow a lot. The French Treasury Agency plans to issue 310 billion euros of medium- and long-term debt in 2026. Let's do the math: 310 billion euros multiplied by 0.01% gives 31 million. Each additional basis point required by investors adds 31 million euros in interest per year, just on the debt issued this year. If the CDS France continues to rise, the bill will follow.