French financial system resilient amid sovereign debt and AI risks

Elevated public financing requirements globally are driving an increase in sovereign bond supply and rising long-term rates.

In France, a weakened fiscal trajectory continues to weigh on financing conditions, despite the market remaining liquid in 2025. The report warns that a lack of sufficient deficit reduction below 5% could erode supporting factors for French sovereign debt, risking deviation from the excessive deficit procedure and further rating downgrades.

Such a scenario could lead to higher volatility and reduced liquidity, potentially amplified by procyclical actors like hedge funds.

Deteriorating sovereign debt conditions could spill over to French banks and corporations, impacting interest expenses and investment.

Ensuring a sustainable debt trajectory is essential, especially with high issuance volumes expected in the euro area in 2026.

Equity markets, especially in the US, exhibit historically high valuations, primarily driven by optimistic forecasts for AI company earnings.

Doubts about this dynamic intensified in late 2025, leading to increased concentration in equity market capitalization.

A sudden market correction, potentially triggered by a revision of technology stock profitability outlooks, could be disorderly and contagious, amplified by non-bank financial intermediaries.

Crypto-asset markets also remained highly volatile, with total market capitalization falling 24% between September and December 2025. The boom in US dollar-based stablecoins continued, reaching USD 298 billion by January 2026, highlighting growing interconnections with traditional finance.