French government bonds have become riskier than one-third of the corporate bond market. What to buy there

French investment-grade corporate bonds, totaling nearly €215 billion and accounting for 38% of the corporate bond market, are now considered less risky than government debt securities with comparable maturities, Bloomberg reported. This amount has increased nearly 18-fold compared with the beginning of 2026.

Yields on this 38% segment of the corporate bond market remain lower than those on government securities, according to Bloomberg’s calculations as of Wednesday, October 7. At the beginning of the year, this segment was worth only €12 billion.

Yields on 10-year French government bonds continued to rise on Thursday, hovering within 5 basis points of the 5% mark. Against this backdrop, corporate debt—particularly from companies with international revenue, such as L’Oreal and oil and gas giant TotalEnergies —has become one of the most reliable assets on the market, according to Bloomberg.

“The narrative surrounding France’s sovereign debt and its corporate debt is diverging more and more,” noted Eliza Belghasem, senior credit strategist at Generali Investments. According to her, companies and banks continue to be in high demand among investors, which underscores “confidence in issuers’ fundamentals and the attractiveness of the total return on their securities.”

The geographic breakdown of a company’s revenue is a key factor in the reliability of its bonds, according to Edward Farley, head of European investment bonds at PGIM. For example, in the case of L’Oreal and LVMH, the fact that they are registered in France, in his view, “is of the least importance.” At the same time, he is more cautious about French banks, which are more closely tied to the government bond market—through their own investments in government debt or loans that depend on the government’s economic policies. The cost of default insurance on French bank bonds is rising faster than for other European lenders, Bloomberg notes.

“A certain reassessment of risk is not always a bad thing in and of itself. But France is increasingly being viewed not as part of the European core, but as part of the periphery,” Mitch Reznik, head of cross-border credit at Federated Hermes, told the news agency.

Government bonds have traditionally been considered the benchmark for reliability in the debt market, since governments can always raise taxes when funds are short, Bloomberg notes. But as deficits grow—and politicians of all stripes are unable to rein them in—companies with strong balance sheets and fiscal discipline appear to be a more reliable choice. Something similar has already happened in the U.S. market: last year, Microsoft bonds briefly traded at lower yields than Treasury securities amid concerns about the impact of tax breaks on the U.S. budget, Bloomberg noted.

Investors in France are concerned about the budget deficit and the parliamentary deadlock over the new spending bill, as well as the upcoming 2027 presidential election. Political uncertainty has prompted Goldman Sachs and Deutsche Bank to offer investors special portfolios of French bonds—including the riskiest bank debt—to bet on different voting outcomes.

This article was AI-translated and verified by a human editor