Edward Conard

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Upside of Inequality Oxford Unintended Consequences

AI Summary. The 10-year US Treasury yield has reached a three-year high, and the global rise in yields poses the greatest risk in countries where investors doubt debt sustainability, most notably France. The gap between French and German 10-year government bond yields is near 1%, and French debt financing costs are their highest since 2008 amid a divided legislature.

John Authers Bloomberg
Date Posted:

Authers warns that “if Bessent doesn’t tame the Treasury market, the worst effects may well be felt in France.” The spread between French 10-year OATs and equivalent German Bunds is close to 1pp—higher than during other episodes of French political upheaval over the past decade.

Where do rising global bond yields pose the greatest risk?

Core argument: The 10-year yield ended last week at a three-year high, close to returning to levels last seen in 2007, a threshold whose breach could prove crucial.

The global shift in yields could have its greatest impact in other jurisdictions where investors worry that government debt is out of control. The most worrying example is France. French politics has been logjammed for two years, since snap elections left the legislature roughly equally divided between three political blocs. That gridlock won’t end before next spring’s presidential election, which might well at last give Marine Le Pen’s Rassemblement National a turn in power. The issue is whether the fiscal concerns boil over into a market crisis before or after the election. The spread of French 10-year OATS over equivalent German bunds is close to 1%, higher than during other political upheavals of the last 10 years. In absolute terms, the cost of financing French government debt is its highest since the crisis of 2008.

Takeaways by Macro Roundup® AI

  1. The 10-year yield ended last week at a three-year high, close to returning to levels last seen in 2007, a threshold whose breach could prove crucial.
  2. The spread of French 10-year OATs over equivalent German bunds stands close to 1%, higher than during other political upheavals of the last 10 years, while the absolute cost of financing French government debt is its highest since the 2008 crisis.
  3. French politics has been logjammed for two years since snap elections split the legislature roughly evenly among three blocs, gridlock unlikely to end before next spring’s presidential election, which might give Marine Le Pen’s Rassemblement National a turn in power.

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  • The Global Debt Shock — Global bond yields are rising and markets are differentiating between high- and low-debt countries, with the smallest cumulative yield increases relative to the global average in Switzerland, Norway, Sweden, New Zealand and Australia. The author argues this price action shows investors are agitated about deficits and debt.
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