The yield gap between French government bonds and safe-haven Bunds has tightened recently, even though government is still struggling to reduce its debt.

"There are crises that trigger an awakening and then major efforts to correct the situation," says Bruno Cavalier, chief economist at Oddo.

"Not in France, not when it comes to public finances. In 2024, the deficit deepened like never before outside the phase of recessions."

"A further drift in 2025 would have negative effects on investors' confidence," Cavalier says, adding that in 2024 or 2023, the government had overestimated tax receipts and didn't closely monitor revenue developments.

He flags that French political parties are busy with leadership issues, including the Rassemblement National (RN), destabilised by the risk of Marine Le Pen being permanently disqualified from the April 2027 presidential election.

Markets no longer fear the RN will bring down the current government to go to elections right after the summer.

"The French political backdrop is less worrying, and its debt is currently not in the market spotlight; investors focus on U.S. tariffs," said Massimiliano Maxia, fixed-income product specialist at Allianz Global Investors.

French spreads have recently tightened when appetite for risk assets has grown and widened when that appetite has fallen.

Source: Reuters (Stefano Rebaudo)