Bessent says France’s bond turmoil unlikely to spread to other markets
US Treasury Secretary Scott Bessent said he does not expect the unrest in France's bond market to spill over elsewhere, even as the country's debt has lagged peers amid political turmoil.
Speaking on 2Way, Bessent acknowledged that France faces a difficult situation but praised President Emmanuel Macron’s economic team as highly capable. Weeks of protests have intensified, with unrest turning violent over the weekend and catching the government off guard, adding further strain to the country’s finances as it struggles to rein in its budget deficit.
The premium investors demand to hold French 10-year bonds over German Bunds has climbed as high as 159 basis points this month, reflecting growing concern over France’s fiscal trajectory.
Bessent noted that some investors have been shifting money into US Treasuries as a haven away from more troubled sovereign debt markets, though he said this was not something Washington is planning around. He added that French turmoil has repeatedly influenced Treasury moves in recent weeks, at times pulling yields down together with French bonds and at other times driving safe-haven flows into US debt.
The 10-year US Treasury yield has dropped about 20 basis points from its early-October peak, when it touched its highest level in more than two decades amid elevated energy prices and heavy corporate bond issuance tied to artificial intelligence investment. Bessent reiterated his view that the US bond market has outperformed global peers under President Donald Trump, citing four of the strongest Treasury auctions in 20 years.
He also addressed elevated US mortgage rates, which have pushed above 7% as they track the 10-year yield, partly due to energy prices linked to the conflict with Iran. Bessent said he expects mortgage rates to ease as that pressure fades, aided by recent housing legislation limiting institutional investors in parts of the housing market. He confirmed the administration still plans to end government conservatorship of Fannie Mae and Freddie Mac, likely next year or the year after.
Why it matters: Continued pressure on French bonds and any haven flows into US Treasuries can influence Treasury yields, mortgage rates and the dollar, while easing US yields would matter for borrowing costs and risk sentiment across equities and credit markets.
Source: Economic Times Markets