Normally, one would not expect a company to borrow more cheaply than its own government. The State sets the rules, collects the taxes and issues the bonds that everything else is priced against, so its curve acts as a floor. In France, that floor has given way.

Bloomberg data show that around 38% of French investment-grade corporate bonds, about €215 billion, now yield less than French government bonds (OATs) of similar maturity. In January, the figure was roughly €12 billion. Earlier this month Air Liquide raised €2 billion, drew around €12.5 billion of orders and priced both fixed-rate tranches below the OAT curve.

We think the move makes sense, up to a point. It reflects a genuine loss of confidence in French public finances. But it does not make a French company a better credit than the French State, and we would be wary of treating it as the new normal.

How France got here

At the start of October, the 10-year spread between OATs and German Bunds closed the week at 141 bps. That is about 10 bp short of the weekly peak of January 2012, in the middle of the euro debt crisis. The jump that week alone was 32 bps, the largest weekly move in our data going back to 2008. By 9th October it had eased slightly, to 137 bps.

The pattern is easy to follow. Once the 2011-12 crisis was over, the spread spent the best part of a decade between 20 and 60 bps. Then Emmanuel Macron dissolved the National Assembly in June 2024, and the spread jumped above 75 bp in a week. It has not been stably back to its old range since. Over the past few weeks, it has taken off again.

The comparison with Italy may say even more. France first paid more than Italy to borrow at ten years on 15th September 2025. For a while the two kept swapping places. Since 4 August 2026, though, France has paid more every single trading day, about 30 bps more by mid-October. Spain now borrows roughly 75 bps below France.

We do not read this as noise. The spread is wider on long maturities than on short ones, which is what one would expect if investors were asking for a lasting premium for fiscal and political risk, rather than reacting to a technical blip.

What made it worse

Fundamentals explain the direction of travel. Three quirks of the French market explain why it has been so fast.

The first is who owns the debt. Around half of French government bonds sit with foreign investors, far more than in Italy or Spain. That makes OATs quick to react when international sentiment turns, whatever is happening at home.

The second is leverage. Hedge funds had built large positions in OATs, hedged with swaps and financed in short-term repo. When prices started to fall, stop-losses kicked in and they had to sell. Some estimates put up to half of the recent widening down to this unwinding.

The third is the lack of a guaranteed safety net. The ECB does have a tool to calm disorderly spread moves, the Transmission Protection Instrument, but a country has to be in line with EU fiscal rules to use it. France is under an excessive deficit procedure, so markets are not counting on it.

Why companies now borrow below the State

Mostly, it comes down to where the money is made. L’Oréal, TotalEnergies and Air Liquide earn most of their revenues abroad, so global demand matters far more to them than the French budget. The State has no such cushion: all of its risk is French. Investors are simply pricing that in.

Supply and demand do the rest. The Treasury is issuing record amounts of OATs, while good-quality corporate paper is scarce. Credit funds and insurers that have to stay invested in euro corporate bonds end up chasing the same handful of names, which pushes their yields lower still.

Why it may not last

The geographic argument holds, but only so far.

For a start, the State can always tax its companies. When public finances are squeezed, large firms are usually among the first asked to chip in, through one-off surcharges on corporate tax or sector levies. A company is “safer than the State” only until the State sends the bill.

The two kinds of bond are also not directly comparable. OATs are among the most liquid bonds in the world, and banks can use them in repo and count them as top-tier liquid assets. A corporate bond offers none of that, so part of its lower yield reflects scarcity rather than lower risk.

Finally, history is not on the side of a lasting split. In 2011-12, several Spanish and Italian companies also traded below their governments. Once the ECB stepped in and the sovereigns stabilized, the gap closed. In a real French debt crisis, contagion and tight liquidity would hit French companies too.

French banks: where the risk still sits

Some industrial and consumer groups may have broken away from the sovereign. French banks have not. They hold a lot of French government debt, and their funding costs move with the State’s. Insuring French bank bonds against default now costs more than for comparable European lenders.

For anyone managing a company’s cash, this is where the issue stops being abstract. Deposits, bank commercial paper and money market funds heavy on French paper all carry some French sovereign risk. Often, nobody has ever looked at them that way.

What to watch

Two dates stand out in the coming weeks: Moody’s review of France on 23 October and the ECB meeting on 29 October. The debate on the 2027 budget will be running in parallel.

French companies borrowing below their government show how far confidence in French public finances has slipped, even though their fortunes remain tied to the State that taxes them. For investors, the useful exercise now is to measure how much French risk their cash already carries, and to decide whether that exposure is intended.

Notes and sources

Market data and press sources used for context: Bloomberg, New Momentum analysis. Spread figures are weekly closes; yields are daily closes. Data as of 16th October 2026.

After nine months of waiting, the Fed finally pulled the trigger with a 25-bp cut, taking Fed Funds down to 4.00–4.25%.

Powell called it “risk management,” not the start of a big easing cycle, which kind of left markets scratching their heads.

📌 Asia: loved it at first, with the Nikkei touching 45,000 intraday, thanks to tech stocks flying. But a stronger yen quickly spoiled the party.

📌 US: the Dow managed a small win (+0.6%), while the S&P (-0.1%) and Nasdaq (-0.3%) reminded everyone that sentiment is fragile.

📌 Europe: futures pointed to a quiet open, slightly in the green. Nothing dramatic.

Here’s the thing though:

Bloomberg OIS data shows traders don’t buy the “one and done” story.

Pricing now points to four more cuts by mid-2026, with implied rates close to 3.0%. That’s way more aggressive than the Fed’s own dot plot (two this year, one next).

Markets clearly think Powell’s hand will be forced…

And let’s not forget the politics: a Trump appointee pushing for a deeper cut, ongoing noise around Fed independence…it’s messy, and investors hate messy.

👉 For treasurers and fixed income folks, the takeaway is simple:

📍“Higher for longer” is cracking.
📍Volatility around the Fed path isn’t going anywhere.
📍Liquidity tools need to stay flexible.

Powell summed it up perfectly: “There are no risk-free paths.” True, but that’s also why opportunities are popping up everywhere.

Source: Bloomberg

⚠️ The #Fed and #ECB interest rate spread is at historically unusual levels. The Fed keeps its policy unchanged at 4.25–4.5%, while the ECB’s cycle appears to be on hold. Markets anticipate the gap will start to close in the coming months.

💰 No further cuts are priced in Europe in 2025. Maybe one in 2026. For now, the dovish cycle is complete: “wait and see” is the message.

✂️ US futures price in around 50bps of easing by end-2025. Two cuts may be on the table before year-end, even as Fed officials argue that inflation remains a bigger risk.

📊 The latest Fed Minutes made it official: most members see #inflation as a bigger risk than jobs. #Tariffs are gasoline for that fear, with the risk now that expectations get untethered. Meanwhile, #payroll revisions showed hiring stalled, and #unemployment rose to 4.2%.

🎤 Next up is #JacksonHole. Powell has the stage to alter tone. Soft labor data argues for cuts, wholesale price spikes argue for patience. Don’t expect him to commit to a move. More likely, he keeps it data-dependent until the September meeting.

🧭 Final takeaway: divergence won’t last forever. Markets are already betting on convergence. Positioning for that shift could matter more than the timing of the first cut.

⚠️ When hashtag#France yields more than hashtag#Spain, something’s off in the Eurozone playbook. This quarter, 30Y French OATs hit 4.21%, overtaking Spain’s 4.14% — a rare reversal. Markets are rethinking who they trust, and for how long.

💰Even in hashtag#Germany, the 30Y bund trades above 3.22%, despite hashtag#ECB cuts. With a €1T fiscal plan on the horizon, investors demand more to hold duration.

✂️And hashtag#Italy? Surprisingly quiet. Its 30Y hashtag#BTP yields 4.46%, but issuance is down €19B YoY. Sometimes, doing less is doing more.

📊 And short-term bonds? They’re talking too.
The France–Spain 5Y hashtag#spread has been negative for most of the past year. hashtag#Portugal is outperforming both, and hashtag#Greece isn’t the clear outlier anymore.
This isn’t just about rates — it’s about fiscal erosion 💸, and markets are recalibrating hashtag#risk. ⚖️

🧭 Final takeaway: It’s time to hashtag#diversify (seriously).
Still relying on yesterday’s “safe names”? France’s slide proves that reputation shifts can outpace spreads — and portfolios must keep up.

At New Momentum, we help clients rethink sovereign risk with clarity, discipline and flexibility. Whether you’re repositioning your fixed income core or testing new exposures — we’re here to help.

📬 Let’s talk — before the market sends its next wake-up call. 🚨

📌 The Federal Reserve concluded 2024 with a third consecutive interest rate cut, emphasizing a renewed focus on tackling inflation. Chair Jerome Powell acknowledged that inflation projections have worsened, delaying the achievement of the 2% target. This prompted a more cautious approach to future rate cuts, now expected to be fewer than initially anticipated.

📌 Recent data reignited concerns about inflation stagnating above the Fed’s goal, marking a strategic shift from earlier concerns about labor market softening. Policymakers now forecast inflation at 2.5% by the end of 2025, and they do not expect to hit the 2% target until 2027.

📌 Market reactions were swift and severe, with US Treasury yields and stocks dropping sharply, while the dollar surged to its strongest level in over two years. The Fed’s cumulative rate cuts in 2024—amounting to 1% over three meetings—represent the steepest reductions since 2001 outside of a crisis.

📌 External factors, including proposed policies by President-elect Donald Trump, have added uncertainty to inflation forecasts. These include tax cuts, tariffs, and other fiscal measures, which many economists fear could fuel inflation further. Powell emphasized the importance of cautious policy adjustments amidst these uncertainties.

Source: Bloomberg

The traditional divide between Eurozone core countries (like Germany and France) and peripheral ones (such as Italy, Spain, and Greece) is fading. Historically, this distinction was rooted in sovereign debt crises, with core nations representing stability and peripherals being perceived as fiscally fragile. However, bond yield spreads between these groups have narrowed significantly, signaling a shift in investor sentiment.

Key Drivers of Change

1.    Next Generation EU (NGEU):
The NGEU program, introduced in response to the pandemic, has provided low-cost loans and grants to foster economic reforms and cohesion within the EU. This has reduced the risk of fragmentation in the Eurozone, helping stabilize peripheral economies.

2.    ECB’s Transmission Protection Instrument (TPI):
The European Central Bank has introduced the TPI to prevent disorderly bond market movements, ensuring financial stability without imposing the rigid conditions seen in earlier programs.

3.    Germany’s Declining Economic Role:
Once the Eurozone’s growth engine, Germany faces structural challenges, including reduced competitiveness in the electric vehicle sector, the end of cheap Russian gas, and weaker trade ties with China. As Germany’s economic leadership erodes, its bonds (Bunds) may lose their status as the ultimate safe haven.

4.    Improved Stability in Peripherals:
Peripheral countries, particularly Italy, have gained investor trust due to improved governance and fiscal reforms. The government of Meloni has avoided destabilizing actions, in contrast to political turbulence in France and Germany, which has shaken investor confidence in these core nations.

Implications for the Future

The convergence in bond yields signals a potential paradigm shift in European financial markets. Countries previously labeled as risky are now seen as more stable, while core nations face growing uncertainty. This could mark the end of old biases, as investors increasingly value policy effectiveness and economic reform over historical stereotypes.

While challenges remain, particularly in France and Germany, the narrowing yield spreads suggest a more balanced perception of risk across the Eurozone. This trend could redefine the dynamics of European debt markets and the broader economic landscape.er time.

📌 Global Influence of the Dollar
Since World War II, the U.S. dollar has been the dominant global currency, used in most international transactions and held as the primary reserve by many countries. Its strength is rooted in U.S. economic stability and the liquidity of dollar-denominated assets. However, U.S. monetary policy, such as Federal Reserve interest rate hikes, can create economic problems in other countries, especially those that rely heavily on the dollar.

📌 The Dollar as a Political Tool
The U.S. uses the dollar as a foreign policy weapon, leveraging its control over the global financial system to impose sanctions on countries like Russia, Iran, and North Korea. These sanctions can cut nations off from international finance, as seen in the 2022 actions against Russia. However, this has prompted some nations to seek alternatives to reduce their reliance on the dollar.

📌 Challenges and Alternatives
Though the dollar remains dominant, there are potential challengers like the euro and China’s yuan. However, the euro lacks the political unity of a complete economic system, and the yuan is limited by government control and low global trust. Other options, like gold and Bitcoin, are considered stores of value but lack the stability or liquidity to replace the dollar. U.S. internal risks, such as political instability and debt ceiling battles, could also weaken the dollar’s global role over time.

📌 The European Central Bank (ECB) has reduced interest rates for the third time this year, lowering the deposit rate to 3.25%, as inflation slows quicklier than expected. The ECB anticipates inflation control will be achieved next year, adjusting its forecast from the second half of 2025. While the exact timeline for future rate cuts remains unclear, the central bank stressed that rates will stay restrictive as long as needed to manage inflation.

📌 Despite the earlier optimism for economic growth, the region’s economy has slowed, with inflation dropping below 2% for the first time since 2021. ECB President Lagarde acknowledged downside risks to growth but maintained that a recession is unlikely, projecting a “soft landing” for the economy. Challenges include geopolitical risks and uncertainties around global trade, particularly regarding the Middle East and potential U.S. tariffs under Donald Trump’s presidency.

📌 Economic performance remains mixed across the eurozone, with strong demand in southern countries like Spain and Greece, while Germany’s economy lags due to weaker demand from key markets such as China. Some analysts predict the ECB may continue cutting rates into 2025, bringing the deposit rate to 2% by year-end, in line with estimates for a neutral monetary policy stance. However, inflation risks persist, particularly in the services sector, keeping the ECB cautious in its approach to monetary easing.

Source: Bloomberg

📌 After decades of unstoppable growth, China is now facing one of its deepest economic crises, with a 2024 growth target of 5% that seems increasingly out of reach. Consumer spending is down, the real estate market is unstable, and tensions with the United States, limiting China’s access to advanced technologies like semiconductors, are hindering innovation and high-value-added production.

📌 The real estate sector, traditionally a key driver of China’s growth, is at the center of this crisis. After attempting to curb developers’ debt, the government triggered a market contraction, leading to the default of many companies and a decline in housing prices. This has eroded trust in the real estate market, once considered a safe investment and a source of wealth. The crisis has wiped out approximately $18 trillion in household wealth, driving consumers to save rather than spend. Youth unemployment hit record levels in August, further worsening the situation.

📌Despite government efforts to revive the real estate sector and restore consumer confidence, progress remains slow, and a recovery in household spending seems distant. Among the measures taken, in September the government cut interest rates, increased liquidity to incentivize lending, and promised funds to support the stock market. Bloomberg forecasts that these measures could boost growth by up to 1.1% over the next four quarters, but many analysts remain skeptical about their long-term effectiveness.
The risk is that China may enter a prolonged period of weak growth, like Japan’s “Lost Decade” in the 1990s, with global impacts due to the strong economic ties. According to the International Monetary Fund, China will remain the main contributor to global growth until 2028, accounting for 22.6%, more than double that of the United States. However, Beijing is at a crossroads, and its next decisions will be crucial not only for the country’s economic future but also for global economic stability.s.

🚩 𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧: Europe faces economic stagnation with a widening gap compared to the United States, primarily due to weak productivity growth linked to slow adoption of advanced technologies like AI, cloud computing, and robotics.

📌 𝐓𝐞𝐜𝐡𝐧𝐨𝐥𝐨𝐠𝐢𝐜𝐚𝐥 𝐥𝐚𝐠: Europe lags the U.S. and China in innovation, particularly in advanced tech sectors, resulting in fewer global tech leaders.

📌 𝐇𝐢𝐠𝐡 𝐞𝐧𝐞𝐫𝐠𝐲 𝐜𝐨𝐬𝐭𝐬: Europe’s industries struggle with energy costs, especially natural gas, which is significantly higher than in the U.S., exacerbated by supply disruptions from Russia.

📌 𝐆𝐞𝐨𝐩𝐨𝐥𝐢𝐭𝐢𝐜𝐚𝐥 𝐝𝐞𝐩𝐞𝐧𝐝𝐞𝐧𝐜𝐢𝐞𝐬: Europe’s reliance on external sources for raw materials and essential technologies has made it vulnerable to geopolitical risks, notably from Russia and China.

📌 𝐍𝐞𝐞𝐝 𝐟𝐨𝐫 𝐫𝐚𝐝𝐢𝐜𝐚𝐥 𝐜𝐡𝐚𝐧𝐠𝐞: Draghi calls for a substantial shift, proposing annual investments of €750-800 billion (4.4-4.7% of the EU’s GDP) to boost competitiveness, akin to the Marshall Plan.

📌 𝐂𝐨𝐦𝐦𝐨𝐧 𝐝𝐞𝐛𝐭 𝐢𝐬𝐬𝐮𝐚𝐧𝐜𝐞: to fund large-scale projects, Draghi suggests issuing joint debt instruments among EU member states to strengthen capital markets integration.

📌 𝐅𝐢𝐬𝐜𝐚𝐥 𝐫𝐞𝐟𝐨𝐫𝐦 𝐧𝐞𝐜𝐞𝐬𝐬𝐢𝐭𝐲: despite having a unified currency for over 25 years, the EU lacks a cohesive fiscal system, hampering its ability to respond to crises and finance strategic initiatives.

📌 𝐔𝐫𝐠𝐞𝐧𝐭 𝐚𝐜𝐭𝐢𝐨𝐧 𝐫𝐞𝐪𝐮𝐢𝐫𝐞𝐝: Draghi emphasizes that Europe must act now or face irreversible decline, urging for immediate and decisive measures to transform existing strengths into global competitiveness.