(Dec 20): France’s debt agency kept its issuance plans for 2025 unchanged from an initial target as it awaits a new budget following the ouster of the government earlier this month.

Agence France Tresor, or AFT, said it will sell €300 billion ($312 billion) in government bonds next year, net of buybacks. That’s in line with the forecast in the original plan announced in October, following €285 billion of sales this year.

“If this amount has to be changed later in the year, we will do so and communicate to investors,” AFT Chief Executive Antoine Deruennes said.

France is in political and fiscal tumult after leftist and far-right lawmakers united to topple the government of Michel Barnier over his fiscal plans. The former prime minister planned to narrow the budget deficit to 5% of economic output in 2025 from 6.1% this year through €60 billion of tax increases and spending cuts.

President Emmanuel Macron last week appointed Francois Bayrou to succeed Barnier, but the new premier still has not picked a cabinet to attempt to pass a new budget. In the meantime, France will rely on emergency legislation from January that rolls over the same taxes as last year, allows the government to borrow money and issue spending decrees.

“The special law authorizes the AFT to continue to carry out all the cash and debt operations to ensure the financial continuity of the state,” Deruennes said.

While Bayrou has not detailed his policy priorities, his government may have to make concessions on taxation and expenditure that would swell the deficit to be financed by debt issuance. Moreover, France’s economic prospects have deteriorated sharply amid the political uncertainty, making financial objectives harder to reach.

The political and fiscal uncertainty has sent tremors through French debt markets since Macron called snap elections in June, as investors demanded higher compensation given doubts over the country’s ability to tackle its debt mountain.

The gap between French and German 10-year yields, a proxy for French bond risk, is trading around 81 basis points, nearly double where it was in the first half of the year. The gap hit a peak of 90 basis points in late November, the widest since 2012.

Source: Theedgemarkets