France's bond yields hit 24-year high as eurozone rules out bailout

French government bond yields have surged to their highest level in 24 years, stoking fears that a fiscal crisis could spread to other eurozone members — but eurozone countries have drawn a line against any bailout of France.

The Eurogroup, the forum of finance ministers from the eurozone's 21 member states, held its monthly meeting in Luxembourg on Thursday (local time) to discuss the sharp rise in French bond yields, according to Reuters.

The ministers and the European Central Bank urged France to first pass its 2027 budget as a step toward stabilizing bond markets.

Participants agreed that no eurozone institution is prepared to intervene to lower France's borrowing costs, and that the political uncertainty France has created is France's own problem to solve, Reuters said.

Eurogroup President Kyriakos Pierrakakis, who also serves as Greece's finance minister, told reporters after the meeting that "we trust France's commitment regarding public finances." Pierrakakis had said in mid-September that he was "concerned but not alarmed" by the turbulence in European bond markets.

Emmanuel Moulin, governor of the Banque de France, acknowledged that France's fiscal situation was "serious," citing a projected deficit of 5.4 percent of GDP, but shrugged off any possibility of ECB intervention.

The ECB has a tool called the Transmission Protection Instrument, which allows it to purchase the government bonds of a specific country if yields rise excessively and disrupt the transmission of monetary policy. However, activating the instrument requires the country to meet EU fiscal rules, including keeping its budget deficit below 3 percent of GDP and public debt below 60 percent of GDP.

Last year, France's budget deficit stood at 5.1 percent of GDP, while its public debt reached 115.6 percent.

The yield on France's 10-year government bond has jumped nearly 80 basis points since early September, approaching 5 percent — its highest level since July 2002. The spread over Germany's 10-year bond exceeded 150 basis points on Oct. 2, the widest gap since the eurozone debt crisis of 2010–2012.

Government bonds from other heavily indebted countries, including Italy, Greece and Belgium, are also coming under pressure, Bloomberg reported.

France plans to issue a record 340 billion euros ($381 billion) in government bonds in 2027 to fund government operations and refinance debt accumulated during the COVID-19 pandemic. The French government has put forward an austerity budget that would trim the fiscal deficit from an estimated 5.4 percent of GDP this year to 5 percent next year. However, with a presidential election in April and a general election in May, it remains unclear whether the budget will pass as planned.

Investors are shifting into safer assets such as German government bonds. According to Bloomberg, 38 percent of French corporate bonds are now trading at higher yields than government bonds — 18 times more than at the start of the year.