France’s budget balance was €-32.1 billion in February. This compares with €-9.72 billion in the previous period.
The February figure shows a wider deficit than the prior reading. The change is €-22.38 billion.
Budget Deficit Widens Dramatically
The February budget deficit has widened dramatically to -€32.1 billion, a sharp increase from the previous month and a significant concern for France’s fiscal path. This points towards increased government borrowing needs, which will put downward pressure on French government bond (OAT) prices. We should anticipate rising yields and consider positioning for this by shorting OAT futures.
This deterioration is causing the spread between 10-year French OATs and German Bunds to widen, already hitting 75 basis points, a level not seen since the political uncertainty of 2024. For context, looking back at this time in 2025, the spread was trading comfortably in a 45-50 basis point range. This growing risk premium makes buying credit default swaps on French sovereign debt a logical strategy to hedge against further fiscal trouble.
Such weakness in a core Eurozone economy will likely act as a drag on the Euro. The European Central Bank might delay further policy normalization, making the single currency less attractive. We anticipate the EUR/USD pair will test the 1.05 support level in the coming weeks.
French Equities Face Rising Uncertainty
Uncertainty is also impacting French equities, with the CAC 40 index already lagging the DAX by over 4% since the beginning of the year. Increased government borrowing can crowd out private investment and raise costs for French companies, hitting their profits. We should therefore consider buying put options on the CAC 40 to protect against a potential downturn.
