Chart of the Week: French government and corporate bond yields are converging

{"text":[[{"start":null,"text":""}],[{"start":null,"text":""}],[{"start":8.7,"text":"Good morning. Companies tend to pay higher rates than governments to borrow in bond markets. In developed markets, government bonds are typically seen as the ultimate risk-free asset; they bear virtually no credit risk. Companies, by contrast, carry a higher risk of default, and so investors usually expect a higher level of compensation for lending to a riskier credit. But higher yields on government bonds are putting that idea to the test, as some companies see sovereign debt yields climb above the yield on their bonds."}],[{"start":38.24,"text":"France is the striking example. The government’s long-term borrowing cost has surged from about 4 per cent in August to above 5 per cent today. The spread between the yield on seven- to 10-year French government and investment-grade corporate debt has collapsed to below zero, according to analysis by Richard Woolnough at M&G. This is an index comparison; it does not mean that every French company is able to borrow more cheaply than the French government. Still, Goldman Sachs estimated this month that more than a third of French companies are currently able to borrow long-term at rates lower than the sovereign."}],[{"start":74.64,"text":"It is part of a wider trend. The OECD reported earlier this year that rising sovereign yields are compressing corporate spreads internationally. At the end of 2025, that was true of 25 groups in their sample of 1,584 investment-grade companies. One of the reasons for this is deteriorating public finances. Governments have borrowed heavily, and concerns about inflation and fiscal sustainability have pushed up their borrowing costs. Meanwhile, companies have mostly kept debt levels sustainable and earnings strong. The result is a narrowing gap between corporate and sovereign yields."}],[{"start":111.28,"text":"This doesn’t mean that companies are becoming safer than governments. The price on a bond can reflect differences in the liquidity characteristics of individual securities and changes in investor risk appetite, all of which can switch rapidly. Corporate bond markets may be liquid currently, but they may struggle to absorb heavy selling in a crisis."}],[{"start":130.2,"text":"Send us your thoughts: unhedged@ft.com."}],[{"start":133.8,"text":"Good reads from Unhedged"}],[{"start":134.3,"text":"Daire: Jared’s self-dealing (Vanity Fair)"}],[{"start":134.8,"text":"Hakyung: Blurred lines (New Yorker)"}],[{"start":135.3,"text":"Katie: Do evil (Guardian)"}],[{"start":135.8,"text":"Rob: Mizrahim ascendant (WSJ)"}],[{"start":null,"text":""}],[{"start":null,"text":""}],[{"start":null,"text":""}],[{"start":150.96,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1792905937_5457.mp3"}