Is L'Oréal more reliable than the French government? Sell-off of French government bonds causes an inversion phenomenon, with yields of nearly 40% of high-rated corporate bonds lower than those of sovereign bonds.

Zhituo Finance APP has noted that after a brutal sell-off of government bonds, nearly €215 billion (about $241 billion) worth of French corporate bonds are now trading at prices below those of government bonds with the same term—meaning they are considered safer than government bonds. This scale has grown nearly 18 times since early 2026.

According to compiled data, about 38% of the total high-grade French corporate bonds yielded lower than government bonds of the same maturity as of Wednesday. At the beginning of the year, this figure was just €12 billion.

This phenomenon, which upends the traditional market hierarchy, is not entirely new, but it has escalated rapidly in France. Market concerns are focused on the missed deficit targets, the deadlock over the new budget, and the looming presidential election, which could steer France in a vastly different direction.

As confidence in government bonds has eroded, corporate bonds—especially those from companies with significant international business like L'Oréal and oil and gas giant TotalEnergies—have now become among the safest havens.

In France, corporate debt is increasingly becoming a safe asset

Elisa Belgacem, senior credit strategist at Generali Investments, said, “France’s sovereign story and the corporate credit story have become increasingly disconnected.” Corporates and banks “continue to enjoy strong investor demand, highlighting market confidence in issuers’ fundamentals and the appeal of total yields.”

Paris-based Air Liquide is the latest example. On Tuesday, this industrial gas manufacturer issued €2 billion in bonds, attracting around €12.5 billion in investor orders, with both fixed-rate tranches yielding below those of French government bonds.

For Edward Farley, head of European investment grade corporate bonds at PGIM, the key factor is where companies’ revenues originate. Take L'Oréal and LVMH as examples: “Aside from being registered in France, the French factor is pretty much the only influence on them,” he said.

However, Farley is more cautious on French banks, as they are more closely linked to the government bond market. Whether by directly holding sovereign debt or being indirectly exposed to economic policy through lending, banks are intimately connected to national risk. The cost of default insurance for French bank bonds has now soared above that of other European peers.

Extreme Cases

Although France is an extreme case of corporate bond yields inverting with government bond yields, this dynamic has been brewing among developed economies for some time.

Traditionally, sovereign debt serves as the benchmark for bond market safety, because governments can increase taxes if they run short of funds. But as deficits swell and politicians across the spectrum struggle to rein them in, companies with strong balance sheets and strict financial discipline have instead become better bets.

Last year, Microsoft briefly saw its bond trading costs dip below those of US Treasuries, as markets worried about the fiscal impact of US tax cuts. Even earlier, during the Eurozone sovereign debt crisis, some Spanish and Italian corporate bonds were cheaper than their respective countries’ government debt—a situation more commonly faced by emerging market investors.

In France, since President Macron announced a snap election after his defeat in the European Parliament elections in mid-2024, political uncertainty has been a persistent theme in the bond market. By the end of that year, a few companies' bond yields had already fallen below those of French government bonds (OATs).

But this phenomenon is now much more widespread, and the scale of the corporate bond yield inversion may continue to grow. With more than six months to go until the French presidential election, the sell-off in government bonds has already begun to spill over to other markets.

Barclays credit strategist Melissa McCallum observed that the typical scenario of the domestic government bond yield curve acting as a floor for the credit market “may fail during periods of sovereign stress.”

“But it’s notable that it’s not just high-grade corporate bonds breaking through the OAT curve; many BBB-rated bonds have also narrowed their spreads below it,” she said.