After a brutal government bond selloff, nearly 215 billion euros (about 241 billion U.S. dollars) of French corporate bonds are now trading below same-maturity government debt, meaning they are viewed as safer than sovereign bonds, a roughly 18-fold increase since the start of 2026.

According to compiled data, about 38% of France's high-grade corporate debt yielded less than same-maturity government bonds on Wednesday, compared with just 12 billion euros at the beginning of the year.

This inversion of traditional market hierarchy is not entirely new, but it has escalated rapidly in France, where market concerns center on missed deficit targets, a budget standoff, and an upcoming presidential election that could take the country in a sharply different direction.

As confidence in government bonds erodes, corporate debt, especially from companies with large international operations such as L'Oreal Co. (LRLCY) and oil and gas giant TotalEnergies, has become one of the safest havens.

In France, corporate debt is increasingly becoming a safe asset. "The French sovereign story and the corporate credit story have become increasingly disconnected," said Elisa Belgacem, senior credit strategist at Generali Investments. Companies and banks "continue to enjoy strong investor demand, underscoring confidence in issuer fundamentals and the appeal of all-in yields."

Paris-based Air Liquide is the latest example. The industrial gas maker issued 2 billion euros of bonds on Tuesday and attracted about 12.5 billion euros in investor orders, with two fixed-rate tranches yielding below French government bonds.

For Edward Farley, head of European investment-grade corporate debt at PGIM, the key factor is where companies earn revenue. For L'Oreal Co. (LRLCY) and LVMH, "apart from being domiciled in France, the French factor only affects them to that extent," he said.

Farley is more cautious on French banks, however, because they are more closely tied to the government bond market. Whether through direct sovereign debt holdings or loans indirectly affected by economic policy, banks are bound to national risk. The cost of insuring French bank debt against default has surged above that of other European peers.

Although France is an extreme case of corporate bonds yielding less than government bonds, the dynamic has been building in developed economies for some time. Traditionally, sovereign debt is the benchmark for safety in bond markets because governments can raise taxes when short of funds. But as deficits swell and politicians across parties struggle to control them, companies with strong balance sheets and strict financial discipline have become a better choice.

Last year, Microsoft's bonds briefly traded at a lower cost than U.S. Treasuries amid market concerns over the budget impact of U.S. tax cuts. Earlier, during the eurozone sovereign debt crisis, some Spanish and Italian corporate bonds were also cheaper than their government debt. This is also a situation emerging-market investors encounter more often.

In France, political uncertainty has been a persistent theme in the bond market since mid-2024, when Macron called snap elections after a crushing defeat in the European Parliament vote. By the end of that year, a handful of companies' bonds had begun to yield less than French government bonds (OATs).

But now the phenomenon is much more widespread, and the scale of corporate bond inversion may continue to expand. France's election is still more than six months away, and the government bond selloff has begun to spill over into other markets.

Melissa McCallum, a credit strategist at Barclays, said the typical situation in which the domestic government yield curve serves as a floor for the credit market "may break down during periods of sovereign stress." "But it is worth noting that it is not just high-grade credit that has fallen below the OAT curve; spreads on many BBB-rated bonds have also tightened below it," she said.