Borrowing Rates

The State does not choose its rate. It sells its securities in regular issues, most often through auctions: specialised banks bid a price (a rate for BTFs), and Agence France Trésor accepts the bids most favourable to the State. These securities are then bought and sold every day between investors, on the secondary market. The price at which they change hands sets, at every moment, the rate a security earns: its yield. This price changes every day: it can be above or below the sum the security will repay.

Price and rate move in opposite directions: the explanation "Debt" showed it with a bond bought for €95 instead of €100. Here is the calculation, for a one-year bond. Take one that will be repaid €100 in one year and will pay €3 of interest at that time: its buyer will therefore receive €103.

On a 10-year bond that also pays €3 a year, bought for €95, the €5 gained at repayment are spread over ten years: its rate rises only to about 3.6%.

The more buyers compete for a security, the higher its price and the lower its rate. When they become scarce, the price falls and the rate rises.

The same mechanism explains what happens to old bonds when rates rise. A bond issued when rates were low pays a small coupon, for example €1 a year per €100. If new bonds yield 3%, nobody will buy it for €100: its price falls until it too yields about 3%. If it still has to pay back €101 in one year (the €100 and a last coupon), it sells for only about €98: bought for €98, it earns €3 (101 − 98) for €98 invested, that is about 3%. Whoever keeps it until maturity does get their €100 back; whoever sells it today gets only about €98 for it.

This is also why, since rates rose in 2022, the State has recorded discounts, meaning that it sells some securities for less than the sum written on them, which it will repay at maturity: when it issues new units of an old low-coupon OAT, it cannot choose their price, and buyers pay only the market price for them, below €100. This is not a loss for the State: it pays a small coupon, and the discount makes up for it, so that overall it borrows at about the market rate. As in the €98 example, the €1 coupon and the €2 discount together cost the State about 3% (€3 for €98 borrowed): the market rate. The government's debt report describes the mechanism as financially neutral.

The rate at which a government borrows depends on several forces, each of which reacts to different news.

The central bank

The European Central Bank (ECB) sets the policy rates: the rate it pays banks on the money they deposit with it, the deposit rate, and the rates at which it lends to them. The rates at which the State borrows short-term follow these policy rates closely. In 2026, inflation rose again, mainly because of oil. To bring it back to 2% over the medium term and prevent it from spreading to other prices and to wages, the ECB raised its deposit rate twice, in June and in September, from 2% to 2.5%. The 3-month BTF rate went from about 2% at the start of the year to about 2.5% as early as the summer, before the second rise, which investors were already expecting.

Expected rates

To lend over 10 years, an investor can buy a 10-year bond, or lend for 3 months, then start again, forty times in a row. So they compare the 10-year rate with the short-term rates they expect over the next ten years. The 10-year rate therefore moves as soon as these expectations change, without waiting for the ECB to act. At the end of February 2026, the start of the war in the Middle East raised fears of higher inflation, and so of ECB rate rises: according to the government's report, the French 10-year rate went from 3.30% to 3.80% in March alone, while the ECB raised its rates only in June.

The length of the loan

Lending for a long time ties up money: to get it back before maturity, the lender has to resell the security, at an uncertain price. It also leaves more time for bad surprises. Lenders usually ask for extra compensation for this, the term premium. This is one of the reasons why a government usually pays more to borrow at 10 years than at 3 months: in the summer of 2026, France borrowed at about 2.5% at 3 months and, depending on the month, at between 3.7% and 4% at 10 years. This is not always the case: in December 2023, the ECB's deposit rate, at 4%, was above the French 10-year rate (2.65% on monthly average), because investors were expecting rate cuts.

Lenders' confidence

Lenders demand a higher rate from a government when they are less sure it can repay without difficulty. In the euro area, the gap with Germany's rate, the area's benchmark, gives an idea of this extra, because all these countries borrow in the same currency. As the explanation "Debt" noted, on 1 January 2026, at 10 years, France borrowed at 3.58%, that is 0.70 point more than Germany (2.88%). On that day, Spain borrowed at 3.30% and Italy at 3.54%: France even paid a little more than Italy, whose debt is nevertheless heavier. At the end of 2025, Italy's debt was worth 136.7% of its gross domestic product (GDP), the wealth produced in a year, against 115.7% for France. Over the first nine months of 2026, on monthly average, the two countries borrowed at 10 years at roughly the same rate: France sometimes paying a little more than Italy, sometimes a little less. In mid-September 2026, the gap of France and Italy with Germany exceeded 0.90 point; that of Spain and Portugal remained between 0.40 and 0.50 point.

The level of the debt is therefore not enough to explain the rate. Rating agencies, whose ratings sum up the risk of non-repayment, look for instance at the path of public finances, growth prospects and the stability of institutions. In 2025, the agencies S&P and Fitch lowered France's rating from AA− to A+, one notch lower. But ratings do not tell the whole story either: in early 2026, on the average of the three main agencies, Italy, Spain and Portugal were still rated lower than France. Yet in mid-September, Spain and Portugal paid less to borrow than France, and Italy about the same. Lenders also look at each year's deficit, which makes the debt grow: in 2025, it was 5.1% of GDP in France, against 3.1% in Italy and 2.4% in Spain. And the agencies usually review their ratings on dates announced in advance, whereas lenders reassess the risk every day. According to the report, questions about the political situation in France also contributed to the rise in its rates in 2026.

Supply and demand for securities

As for any product, the price of a bond also depends on the number of securities for sale and the number of buyers. When governments borrow a lot, more investors have to be persuaded, and the rate tends to rise. The government's debt report observed this link in the past: when France had more OATs outstanding, by an amount equal to 10% of its GDP, its spread over Germany was on average about 0.1 point higher, a link that, according to the report itself, is not fixed over time. It also notes that France's rate rise in 2026 comes amid higher inflation, expected rate rises and large financing needs of governments and of the big artificial intelligence companies. The ECB also weighs on this balance. When it buys government bonds, it takes them off the market, which tends to lower rates; when it stops buying and no longer replaces the bonds that reach maturity, it is a bit as if governments had more securities to sell. According to the estimates based on the ECB's purchases that the report cites, an extra €1 trillion of European securities to sell to investors would raise 10-year rates by 0.30 to 0.45 point, a rise that would not affect France alone.

A rise in rates does not apply straight away to the whole debt. Bonds already issued keep their coupon until maturity; only new securities pay the current rate: those that replace loans that have come to maturity, and those that finance the year's deficit. The State's securities mature, on average, in 8.5 years, and the OATs issued from January to August 2026 last 10.1 years on average: the debt is therefore renewed slowly.

The explanation "Debt" gave an order of magnitude, based on the public debt at the end of 2025: about €35 billion of interest a year for one extra point of rates, once all of that debt has been renewed. The government has worked out how this cost builds up for the State's securities alone (OAT and BTF), which make up about four fifths of the public debt, on a debt that keeps growing: if rates, at all maturities, stayed one point higher than in its forecasts, their interest would increase by €3.4 billion in the first year (2027), by €19.2 billion in the fifth (2031) and by €33.0 billion in the tenth (2036). In the first year already, €1.4 billion of these €3.4 billion come from BTFs, which are renewed within a few months. The cost of a one-point rise in rates thus grows year after year, as the debt is renewed and grows.

The State's accounts show this gradual movement. Its interest burden was €39.0 billion in 2023 and €51.8 billion in 2025; it is estimated at €64.9 billion in 2026 and forecast at €97.1 billion in 2029. This rise comes from higher rates, which pass through little by little, but also from the growth of the debt itself. These amounts cover only the State and follow its general accounts, kept under rules close to those of companies: they cannot be compared directly either with the effect of one point of rates estimated above, counted under European rules, or with the interest burden of about €65 billion of general government as a whole in 2025, including social security and local authorities.

Inflation-indexed bonds

Optional detail.

Part of the debt reacts faster to inflation. Over the past ten years, between 11% and 13% of the State's debt has been made up of inflation-indexed bonds (OATi, which follow prices in France, and OAT€i, which follow those of the euro area): their rate is lower, but the sum to be repaid increases each year with rising prices. This increase is counted each year in the State's interest burden, even though it is paid, for the most part, only at repayment: 0.1 point more or less inflation changes this burden by about €0.3 billion.

Most important:

Optional on a first reading: