French sovereign bonds are now riskier than 38% of French corporate paper

Around EUR215 billion of French investment-grade corporate bonds, accounting for 38% of the corporate market, are now considered less risky than French government debt of comparable maturity, Bloomberg reports. That amount is up almost 18-fold since the start of 2026.

The corporate bonds making up that 38% yielded less than government debt as of Wednesday, according to Bloomberg data. At the start of the year, the pool of such corporate paper was worth just EUR12 billion.

The yield on 10-year French government bonds continued to rise on Thursday, coming within 5 basis points of 5%. Against this backdrop, corporate debt, particularly from companies with international revenue such as L’Oreal and TotalEnergies, has become a safe haven, Bloomberg writes.

“France’s sovereign story and its corporate credit story have become increasingly disconnected,” said Elisa Belgacem, senior credit strategist at Generali Investments. Companies and banks “continue to enjoy strong investor demand, highlighting confidence in issuer fundamentals and the attractiveness of all-in yields,” she added.

Where companies generate their revenue is a key factor in assessing the safety of their bonds, points out Edward Farley, head of European investment-grade corporate bonds at PGIM. For L’Oreal and LVMH, for example, “other than the fact that they’re domiciled in France, that’s about as material as it gets,” he said.

Farley is more cautious about French banks, however, as they are more closely linked to the government bond market through their holdings of sovereign debt or loans exposed to the indirect effects of government economic policies. The cost of insuring French bank bonds against default has been surging above that of other European lenders, Bloomberg notes.

“Some repricing of risk is not necessarily a bad thing. But France is increasingly being priced less like core Europe and more like the periphery,” Mitch Reznick, head of cross-border credit at Federated Hermes, told Bloomberg.

Government bonds have traditionally been considered the benchmark for safety in the debt market because governments can raise taxes when they run short of funds, Bloomberg notes. But as deficits grow and politicians of all stripes struggle to rein them in, companies with strong balance sheets and fiscal discipline look like a safer bet.

A similar inversion has already occurred in the U.S.: in May 2025, Microsoft bonds briefly traded at lower yields than Treasuries amid concerns about the impact of tax cuts on the U.S. budget, Bloomberg noted.

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