Companies usually pay more than governments to borrow in bond markets, because government bonds are seen as virtually risk-free while companies carry a higher risk of default. That relationship is now being tested. France is the striking example: the government's long-term borrowing cost has surged from about 4 per cent in August to above 5 per cent today.
The spread between the yield on seven- to 10-year French government and investment-grade corporate debt has collapsed to below zero, according to analysis by Richard Woolnough at M&G. This is an index comparison and does not mean every French company can borrow more cheaply than the French government. Still, Goldman Sachs estimated this month that more than a third of French companies can currently borrow long-term at rates lower than the sovereign.
It is part of a wider trend. The OECD reported earlier this year that rising sovereign yields are compressing corporate spreads internationally. At the end of 2025, that was true of 25 groups in its sample of 1,584 investment-grade companies. A key driver is deteriorating public finances: governments have borrowed heavily, and concerns about inflation and fiscal sustainability have pushed up their borrowing costs. Meanwhile, companies have mostly kept debt levels sustainable and earnings strong.
This does not mean companies are becoming safer than governments. Bond prices can reflect differences in the liquidity of individual securities and shifts in investor risk appetite, which can change rapidly. Corporate bond markets may be liquid today, but they could struggle to absorb heavy selling in a crisis.
Source: Financial Times Markets · Summarized by HeadlinesBriefing