Bonds: Interest rate risk and interest taxation in 2026

When interest rates rise, the price of a fixed-rate bond falls. If you sell it before maturity, you can lose part of your investment, as explained by the AMF (French Financial Markets Authority). The interest (the coupon) is taxed like other fixed-income investment income: for a French tax resident, impots.gouv.fr indicates 12.8% income tax and 18.6% social security contributions as of January 1, 2026, totaling 31.4%, with the option to choose the progressive tax scale.

This page deals with bonds held directly by a French tax resident. It does not cover capital gains on disposal, withholding tax for non-residents, rating scales, government bonds, or bonds held in a PEA, PER, or assurance-vie policy.

What you buy

A bond is a share of a loan issued by a government, local authority, or company (AMF). In exchange for your loan, you generally receive regular income in the form of interest (the coupon). This is calculated based on the bond's face value and the number of bonds purchased. At maturity, the bond is repaid: you get your initial investment back, unless the issuer goes bankrupt.

This is a medium- to long-term investment (AMF). With a fixed rate, the coupon is known in advance; with a variable rate, it fluctuates according to market interest rate movements. The amount of the return depends on the risk presented by the issuer (AMF).

Interest rate risk

The value of a bond varies inversely with interest rates. The mechanism, as described by the AMF (French Financial Markets Authority), is as follows: when rates rise, new bonds are issued with coupons higher than those of older bonds, whose value therefore falls. When rates fall, the price of fixed-rate bonds rises.

Two cases:

• Resale before the expiry date. The AMF writes that an investor can lose part of their investment if they sell their fixed-rate bond before its maturity date, in a context of rising rates.
• Variable rate bond. It is the value of the coupon that varies, and not the value of the bond, which remains relatively stable according to the AMF.

Other risks cited by the AMF

• The transmitter's fault. This is the risk linked to the solvency of the entity that issued the securities. The issuer may go bankrupt (AMF fact sheet).
• The grading and the course. The AMF refers to the opinion of a rating agency that assesses the level of risk, and specifies that the share price fluctuates according to the issuer's creditworthiness. The rating scales are not detailed here.
• Liquidity. The AMF describes the bond market as relatively illiquid.
• Convertible bonds. Some bonds may not be redeemed but exchanged for shares at maturity.

How interest is taxed

Taxable income

According to the BOFiP (French Official Tax Bulletin), bond income is linked to the interest or income distributed during the year (paragraph 1, Article 119 of the French General Tax Code), and the income to be considered is the interest or income actually received during the year (paragraph 10, Article 118 of the French General Tax Code). impots.gouv.fr lists bonds and other negotiable debt securities among fixed-income investments.

Tax rates for a French tax resident

The increase stems from the CSG (General Social Contribution), which has risen from 9.2% to 10.6% on investment income and capital gains (2026 Income Tax Guide). The list of products remaining at 17.2% published by impots.gouv.fr includes capitalization bonds and contracts, certain assurance-vie contracts, older home savings accounts and plans, and tax-exempt popular savings plans. Bonds are not included.

The deposit from the paying institution and the exemption

When the paying institution is located in France, it withholds 12.8% of the interest it pays. This withholding is mandatory but not a final tax payment: it is an advance payment of income tax, credited against the tax due. The amount is generally pre-filled in box 2CK of the tax return.

You can request an exemption from withholding tax on interest if your reference tax income for year N-2 is less than €25,000 (single person) or €50,000 (couple). The request must be made by submitting a sworn statement to the paying institution before November 30th of the year preceding the year in which the income is paid (impots.gouv.fr, page updated on April 7, 2026). The exemption does not apply to social security contributions. For interest paid in 2027, this deadline is therefore November 30, 2026: please verify this at the source as of the date you are reading this page.

The option for the pricing scale

You can opt out of the flat rate and choose the progressive tax scale by checking box 2OP on the tax return. The rules governing a change of mind after making this choice must be checked before checking the box. The tax scale is not detailed here.

Where to declare

Line 2TR of the 2042 K declaration covers fixed-income investment products, including bond and government bond products (practical guide 2026).

Cashback bonus and zero coupon

A bond can be redeemed at a higher price than its issue price. For securities issued since January 1, 1992, the BOFiP (French Official Tax Bulletin) defines the redemption premium as the difference between the amounts or values to be received and those paid upon acquisition (§200). For securities issued before this date, the reference is the issue price (§130). For securities issued since 1992, the redemption gain is in all cases taxable investment income (§340).

Zero-coupon bonds do not pay interest per se; the return is the difference between the repayment and the principal. For example, see BOFiP (§370): a bond issued at €150 and redeemed at €200 carries a premium of €50 for the subscriber who holds it until redemption. The last holder, who acquired it at €180, is taxed on a premium of €20 upon redemption. The capital gain of €30 (€180 minus €150) is taxed separately under Article 150-0 A of the French General Tax Code (CGI): it is not discussed here.

The exemption of certain prizes and redemption bonuses, provided for in point 3 of article 157 of the CGI, was repealed by the finance law for 2022 (law no. 2021-1900, article 35), for income tax due for 2021 and subsequent years.

A reimbursement lower than the acquisition price constitutes a capital loss (BOFiP), the treatment of which is not detailed here.

What if you are not a tax resident of France?

The BOFiP (French Official Tax Bulletin) indicates that individuals without a tax residence in France are generally not taxable on income from bonds issued by debtors established in France, subject to tax treaties. This income may be subject to withholding tax, the rates of which are not discussed here. Your situation will be assessed on a case-by-case basis.

Numerical example (fictitious profile)

Situation. Marc, a French tax resident, holds 100 fixed-rate bonds with a face value of €1,000 each, purchased at par, for a total of €100,000. The coupon is 4.% per year, and the maturity date is in 8 years. These figures are hypothetical. He receives a coupon payment in 2026.

Issue. What is left of the coupon after tax and social security contributions? And what happens if he has to sell his securities in two years, when market rates have risen?

Strategy. Apply the rates published by impots.gouv.fr to the coupon, then calculate, for educational purposes, the theoretical price of a bond with the same coupon when the market demands 6 % for a comparable bond with a 6-year maturity. No option for the tax schedule is assumed.

Result.

With social security contributions at 17.2 %, as for income paid in 2025, these contributions would have been €688: the difference for this coupon is €56.

Upon resale, the theoretical price of a share drops from €1,000 to approximately €901.65 (assumptions: annual coupons, six years remaining, market yield of 6.%). The capital loss is approximately €98 per share, or about €9,835 on 100 shares. Marc, who holds his shares until maturity, would be reimbursed his initial investment, barring the issuer's bankruptcy. This calculation does not take into account fees and accrued interest. The tax implications of the resale are not addressed here.

This profile is fictitious. The coupon, duration, and market yield are assumptions. The figures illustrate the calculation. They do not predict your specific situation.

What changes depending on your situation

• Your horizon Can you wait until the deadline?
• The type of bond and the quality of the issuer : fixed or variable rate, convertible, zero coupon, rating.
• Your reference tax income : it is a condition for waiving the deposit.
• The rest of your income : it plays on the appeal of an option for the scale.
• Your tax residence : the above rules apply to residents of France.
• The holding support : PEA, PER or assurance-vie follow other rules, not covered here.

The rule depends on your situation. No results are guaranteed.