France’s bond market is a mess, and there’s a chance the turmoil could spill over and cause more pain to the US Treasury market.
Bond turmoil has been a defining characteristic of global financial markets this year, and France has taken center stage this week amid a jarring sell-off in its government debt securities. Fixed-income investors have concerned about a cocktail of macro and political upheavals.
Fears are rising that the nation is teetering on the edge of a full-blown debt crisis, given its pace of spending and a record amount of debt issuance slated for 2027.
Macro experts remain on the fence about whether the meltdown in France could result in wider financial contagion or lead to a larger interest rate crisis. But the fear is that the rapid selling in Europe could spook investors around the world, setting off a spiral that sends yields in the US even higher, several market pros told Business Insider.
Bond jitters in France have already spread to other European countries, with yields spiking in the UK, Spain, and Italy throughout the week. The US bond market sell-off also accelerated midweek, with the 10-year US Treasury yield surging as much as 7 basis points to 5.35% on Thursday, the highest level since 2002.
| Government bond | Yield | Change (in basis points) |
| US 10-year Treasury | 5.33% | +5 |
| France’s 10-year bond | 4.91% | +4 |
| Spain’s 10-year bond | 4.15% | +2 |
| Italy’s 10-year bond | 4.66% | +2 |
Jeremie Peloso, a European macro strategist at BCA Research, said he’s eyeing the possibility that distress in the European bond market creates spillover effects and worsens the bond sell-off in the US.
Typically, bond pressures spread the other way around, with distress in the US spreading to Europe. But the severity of the sell-off in French government bonds is drawing attention to fiscal issues around the world, which could in turn weigh on the US market, Peloso said.
“The gravity of the situation in France, this automatically puts the spotlight on fiscal concerns,” he said. “At the end of the day, it might be worse in the US just because of how much more expensive it is to refinance and the interest expenses,” he added.
Padhraic Garvey, the regional head of Americas research at ING, said he was concerned the US could see a similarly severe bond sell-off. The decline in US Treasurys so far has been mild compared to the pace at which investors have dumped bonds in France, he said.
He outlined one worst-case scenario where credit spreads, a measure of risk in credit markets, double or triple as investors dump US Treasurys, which he said would constitute a “proper bond crisis.” If such a situation unfolded, it would be similar to what happened shortly after the “Liberation Day” tariff announcements in 2025, when investors mass-sold Treasurys and credit spreads widened to extreme levels, he said.
“So could this happen in the US? That is what I would be most fearful of,” Garvey said. “I’m not calling for it, but I’m watching it very carefully.”
Stocks would also likely underperform around the world, he added, referring to how higher yields tighten financial conditions and are considered a headwind to risk assets. US stocks have tolerated yields above 5% relatively well so far, though it’s difficult to ascertain if there’s a higher threshold at which rates begin to hurt earnings and drag the market down.
Ed Yardeni, a market veteran and the president of Yardeni Research, said it’s more likely that bond distress in Europe causes investors to flock to US Treasurys for safety, helping cool US bond yields.
But he raised the possibility of one bearish scenario where bond yields around the world rise due to the unwind of the yen carry trade, a maneuver in financial markets where investors borrow at low rates in Japan and then swap it into dollars to deploy in higher-yielding US stocks and fixed income.
The trade has been a major source of capital flows to US assets in recent years, and previous unwinds have caused major volatility across markets.
Where to invest
There is no clear flight to safety as investors dump government bonds, but Peloso and Garvey have a few ideas about where investors could seek shelter.
Peloso said investors might consider purchasing government bonds of nations with a better fiscal outlook than France, such as Spain or Italy. Yields in both nations have climbed amid the bond market turmoil in France, though the volatility and risk associated with those bond is lower than French government debt at the moment.
“These are two countries in Europe where the fiscal picture has improved materially, and in these two economies, a US investor would essentially get additional percentage points,” he said of higher yields.
ING’s Garvey advised investors worried about a steeper sell-off in the US to sell long-duration Treasury bonds and purchase short-duration bills. The idea is that, since selling pressure is largely concentrated at the long-end of the Treasury curve, a portfolio with long-duration bonds would see the price of those bonds drop more than a portfolio with short-duration.
A sell-off in bonds isn’t necessarily bad for investors, depending on how they are exposed to US Treasurys. Higher yields means higher regular payments to bond holders. However, there could be losses for investors who sell Treasurys before they mature, or for investors who hold ETFs that track the price of the bonds, which fall as yields increase.
Investors may also consider trimming their holdings of international or US stocks, given how equities tend to underperform when bond yields rise sharply, Garvey said.
“It’s just a knee-jerk reaction,” he said of what could happen if the sell-off picked up steam.