Bond traders favor French bank bonds over government debt as sovereign risk climbs

In most markets, government bonds are the boring, reliable baseline. They are the thing everything else is priced against. So when professional traders start treating collateralized bank debt as the safer bet over sovereign paper, something unusual is happening. That is exactly the situation in France right now. Covered bonds issued by French banks are trading at tighter spreads than French government bonds, known as OATs, a dynamic that reflects a quiet but meaningful reassessment of where the real risk in French financial markets actually sits. Why French sovereign debt is losing its safe-haven status The spread between French 10-year OATs and German Bunds hit 90 basis points on September 9, 2026, the widest gap since 2012. France’s public debt sits at roughly 117% of GDP, and France is planning to issue a record 310 billion euros in medium- and long-term debt in 2026. More supply with already-stretched investor appetite is a straightforward recipe for wider spreads. Political uncertainty compounds the fiscal picture. France heads into the 2027 presidential elections with its parliamentary arithmetic already fragile, and bond markets tend to price in political risk well before vo...