US Treasury Secretary Scott Bessent publicly addressed the turmoil in the French bond market for the first time, stressing on one hand that he does not expect the risk to spread outward, and on the other confirming that capital is leaving some worrying countries and flooding into US Treasuries as a safe haven. It is the first time US officials have directly linked pressure on French sovereign credit to the decline in US Treasury yields.

Bessent made the remarks in an interview with the interactive livestreaming platform 2Way on the 20th, US Eastern Time. “I don’t anticipate that what’s happening in France will spill over,” he said, adding that France does face serious challenges, but that the economic team of President Emmanuel Macron is “first-rate” and that he knows the team quite well.

Still, the Treasury secretary acknowledged signs of safe-haven flows in the market: “We are indeed seeing money flow out of some worrying countries and into US Treasuries seeking safe haven, which we did not anticipate.” He added that Washington has not factored such turmoil into its policy planning.

Bond market data corroborates that assessment. The benchmark 10-year US Treasury yield has fallen about 20 basis points from its early-October high; also in October, the spread between French and German 10-year government bonds came close to 160 basis points. That means the recent rise in US Treasury prices cannot be explained solely by US domestic inflation trends or the Federal Reserve’s policy path—global safe-haven demand is also an important driver. Pressure in the French bond market is acting indirectly on US Treasury pricing through the channel of capital reallocation.

French Sovereign Credit Continues to Be Repriced

The recent turmoil in the French bond market is not an isolated event but a continuation of the repricing of sovereign credit risk over several months. The yield on France’s 10-year government bond had earlier risen to 4.963%, the highest level since 2002; the spread between French and German 10-year government bonds widened by as much as 159 basis points this month. More notably, French borrowing costs briefly exceeded Italy’s, even though France’s sovereign rating is three to five notches higher than Italy’s and its economy is about 40% larger.

Market pricing of French sovereign credit has undergone a structural change. The yield on covered bonds issued by French banks was at one point nearly 30 basis points lower than that of the 10-year French government bond, creating an inversion between sovereign and covered bond yields. Such an inversion means investors believe the risk of holding French government debt is now higher than the risk of holding French bank mortgage assets.

IndicatorChangeFrance 10-year government bond yieldRose to 4.963% at one point, highest since 2002France-Germany 10-year spreadWidened to as much as 159 basis points this month10-year US Treasury yieldDown about 20 basis points from early-October highItaly 10-year government bond yieldUp 11 basis points to 4.58%Euro exchange rateWeakened to around $1.1161

Note: Data from public market quotes and media reports.

Protests in France have escalated recently, with the violence of last weekend’s clashes exceeding the government’s expectations, further intensifying market concerns about the government’s ability to control the budget deficit. International capital sentiment is also shifting: Japanese investors have net sold about ¥356 billion (approximately $2.2 billion) of French government bonds so far this year, while the euro has weakened to around $1.1161.

Contagion Risk Still to Be Watched

Bessent’s remarks frame the decline in US Treasury yields within the context of global capital flows. When political and fiscal uncertainty rises in France and other Eurozone countries, US Treasuries—the world’s most liquid safe-haven asset—become the preferred destination for capital reallocation.

But as the Eurozone’s second-largest economy, France’s bond market turmoil still cannot be ignored for its potential transmission to regional risk premiums. Italy’s 10-year government bond yield rose in tandem by 11 basis points to 4.58%, showing the market is already reassessing the credit risk of Eurozone peripheral countries. Since the situation in France deteriorated late last month, French bond volatility has repeatedly moved US Treasuries, sometimes driving bond prices in both countries down together and sometimes prompting safe-haven flows into the United States.

Analysts generally believe the Treasury secretary’s endorsement of the French economic team’s capabilities is more of a diplomatic reassurance; what the market really cares about is whether the French government can produce a credible fiscal consolidation plan amid the political deadlock. Until then, volatility in French government bonds will remain an important variable for global fixed-income markets.

In the interview, Bessent also reiterated that during Trump’s term the US bond market has performed better than comparable markets globally, and said four of the strongest Treasury auctions in nearly 20 years took place during this period.

Mortgage Rates and the Fate of the Two Mortgage Giants

Although US Treasury yields have fallen from their highs, elevated rates are still weighing on the US housing market. US mortgage rates use the 10-year Treasury yield as an important reference, and borrowing costs have again risen well above 7%. Data released on the 20th showed that September pending home sales fell to the lowest level since records began in 2001.

Bessent said the United States will eventually get past this wave of energy price shocks, at which point mortgage rates should decline. He believes current legislative measures will also help, including a housing package recently passed by Congress that restricts institutional investors from parts of the residential market.

As for Fannie Mae and Freddie Mac, the two mortgage-finance giants, the Trump administration has said it wants to end government conservatorship. Bessent said the government is considering acting next year or the year after but did not elaborate on specific arrangements.

He also discussed his personal plans, saying he has no intention of running for higher office and intends to stay on as Treasury secretary until the end of Trump’s term.