France’s bond selloff may be approaching a turning point, as the surge in yields tempts some investors to wade back into the market.
Mediolanum International Funds Ltd is among those that added slightly to holdings in France, while Amova Asset Management and Aegon Asset Management say they are waiting for buying opportunities, after the yield premium of 10-year debt over regional haven Germany soared to 14-year highs of nearly 1.6 percentage points.
“We’re much more constructive on OATs now than we were a month ago,” said Steve Williams, head of global fixed income at Amova, a Japanese investment firm with more than $330 billion in assets. In July, Williams bought OATs, as French government bonds are known, rebuilding a position he trimmed amid the Iran war. Now, he’s “waiting for opportunities to add exposure.”
Mediolanum’s Niall Scanlon said he used the recent selloff to close out an underweight position in France, as “the spread had overshot the fundamentals.” However, he’s “not confident enough” to go overweight just yet.
There are signs that traders have been closing short positions. Open interest in French bond futures fell almost 5% on Monday, according to Eurex data, among the biggest daily drops since April 2025.
Read: France’s Decades of Deficits Bring Home a Painful Risk Premium
Once considered one of Europe’s safest bond markets, OATs have been roiled by fears over France’s rising debt and its failure to rein in spending. The selloff intensified last week, when a draft budget brought the dire deficit into focus and student-led demonstrations spread across the country. France also faces a presidential election in April, with far-left and far-right politicians vying for power.
The market got some relief Tuesday as far-right presidential candidate Marine Le Pen vowed to cut the deficit , though some analysts questioned the credibility of her fiscal plan. Yields bounced back Wednesday, with 10-year rates rising more than 16 basis points.
For investors, such wild swings are a deterrent, making positions harder to manage from week to week. Irina Kurochkina, portfolio manager at Aegon Asset Management said she’s waiting for volatility to subside.
“We’ve been underweight risk in France for a relatively long time, but I think the buying opportunity could be very close,” Kurochkina said.
Investors are also watching France’s widening spread against euro-area sovereigns other than Germany, especially Italy and Greece which endured their own crises in recent years. Ten-year OAT spreads over their Italian equivalent, BTPs, are at a record high, according to Bloomberg-compiled data going back to 1992.
While France has shown “few convincing signs” it’s serious about tackling the deficit, current prices do reflect the risks, said Vera Fehling, chief investment officer for Western Europe at Germany’s DWS Group. She described the OAT-BTP spread as “a very good buffer.”
Others say they are waiting for fiscal austerity to gain wider acceptance among the French public. So far, there is little sign of that, with ongoing protests by students and teachers demanding more money for education.
Debt reduction remains a taboo subject in France, said Elliot Hentov, chief macro policy strategist at State Street Investment Management.
“The moment the general public understands the issue is the moment you buy the bonds,” he said.