Credit crisis fears grow as France’s 10-year bond yield rises above 5%

• France's 10-year OAT yield breaches 5%, a level last seen in 2002.
• Government bonds are plunging as investors grow pessimistic about the French government's ability to secure approval for any substantial savings plan.
• Credit-crisis concerns mount as the spread over the German Bund widens to 160 basis points.

Severe pressure in France's bond market has pushed the yield on the 10-year Obligation Assimilable du Trésor (OAT) above 5% for the first time since 2002, as surging debt combines with increasingly uncontrollable social unrest. Investors' concerns that the French government cannot put forward a credible savings plan have intensified fears of a credit crisis that could halt the Euro's recent recovery.

At EUR 3.596 trillion in the second quarter of the year, France's government debt stood at 119% of GDP, its highest level since the post-war period. The fragile government, meanwhile, lacks the parliamentary backing needed to pass any substantial savings plan.

Any effort to bring public finances under control is unlikely to win support from the main opposition parties, Lepen's far right and Melenchon's far left. Both are biding their time in the expectation that the government's unpopularity will help them secure power in next year's elections.

Can the government contain the challenges from spreading riots?

Adding to the government's difficulties, student protests that began a few weeks ago have spread across the country. Violent riots last weekend prompted the government to impose partial curfews in several cities this week.

With protests expected to resume on Saturday, French President Emmanuel Macron said on Wednesday that he is meeting intelligence services.

Amid these pressures, the yield gap between France's 10-year OAT and the German Bund, which is regarded as safer, has widened to 160 basis points. This spread, used by the market to assess France's risk premium, is now at its highest since the 2009-2011 financial crisis.