French 10 year government bond yields climbed to 4.989% on Friday, the highest level since 2002, as investor concern over fiscal stability accelerates a bond selloff. The yield spread between French and German 10 year bonds hit 151.95 basis points, the widest gap since November 2011, while the cost to insure French debt via 5 year credit default swaps reached 81 basis points. This volatility has created an unprecedented reversal in European credit rankings, with the French government now paying more to borrow than the Italian government.

The market turmoil comes as investors anticipate potential credit ratings downgrades in October and worry that a proposed €43 billion in spending cuts is insufficient to resolve long term challenges. Candriam CIO Nicolas Forest warned that the budget deficit could approach 6% of GDP and noted that investors may not be able to rely on the ECB to contain the rout. In a further sign of eroding confidence, some market participants now view blue chip companies like LVMH as safer credits than French sovereign bonds.