In 2001, Thomas Buberl wrote a PhD thesis on corporate bonds, painstakingly demonstrating a feature of global markets that every good fund manager knows to be true: government debt always wins.
No matter what the economic weather, investors always rate government debt more highly than bonds issued by companies, and for good reason. In a tight spot, a government can (almost) always pay back its debts by whacking up taxes or even printing its own money. Companies have no such luck, and pay more to borrow from investors as a result.
Buberl is now chief executive of Axa, the French insurance giant, whose bonds did something extraordinary earlier this month: they beat the French government.
France’s politics are a mess again and its government bonds are suffering, sending their yields, and the country’s borrowing costs, spiralling higher. Bonds issued by Axa, meanwhile, remain in high demand, making this one of numerous French companies at which bond yields sank below the government’s in mid-September.
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Such cases are rare and a brutal illustration of the pickle the French state is in. Already the country’s yields have nudged above those of Italy – supposedly the euro zone’s enfant terrible – and even of Greece, whose debt crisis almost saw it ejected from the euro a decade ago.
[ As France lurches from crisis to crisis, is it becoming the new Italy?Opens in new window ]
This is a wake-up call for investors: when the going gets tough, it is becoming harder to find somewhere safe to hide. All the old certainties are crumbling, while the European pecking order reshuffles and president Donald Trump chips away at the institutions that underpin US financial greatness.
“There is no safe haven any more today because you can blow up anywhere,” Buberl told me. Axa feels this keenly, as it is a large investor seeking to meet insurance liabilities. “We thought the US treasury was a safe haven and we have seen that the volatility has been quite high and liquidity has been an issue. The only safe haven is diversification – that’s the best insurance,” he said.
The list of bolt-holes is pretty short and does not always make perfect sense.
Top of the pile are slick, easily tradable assets like gold, the dollar and US government bonds, along with the Swiss franc, German government bonds and the Japanese yen. Every investor knows these can be relied on to jump in price in a shock, as a function of convention, history and muscle memory, all baked in to trading algorithms in a way that makes their reaction almost automatic.
But recent market wobbles have put this to the test. When Covid-19 struck in 2020, the response that really spooked investors was not when stocks fell off a cliff, but when US government bonds did too.
[ Global bonds under pressure as 30-year Treasury yield hits 5%Opens in new window ]
More recently, in April 2025, when Trump unleashed his tariffs, US treasuries fell in price and so did the dollar, even while stocks collapsed. As the Bank for International Settlements pointed out in its latest quarterly review, the dollar’s historical relationship to levels of perceived risk in financial markets appears to be fraying.
Earlier this year, Germany embarked on a large spending programme, eroding the scarcity value of its government bonds on which their haven status partly relies, and shoving them lower in price. Switzerland, meanwhile, is on the receiving end of some of Trump’s stiffest trade tariffs. The French corporate/state crossover is the icing on the cake.
Analysts at BNP Paribas pointed out in a recent presentation that across global markets, bond yields for supposedly safe governments – the US, Germany and France in particular – are drifting higher, while sovereign borrowers long considered more risky, like Italy and Spain, are fixing their fiscal health and being rewarded by investors. Perceptions of safety are converging.
[ Why has the German economy gone from Europe’s engine to its anchor?Opens in new window ]
High benchmark interest rates mean that companies are more disciplined in their efforts to keep investors on side, and less willing to borrow on a whim, bolstering the safety of corporate bonds. Already, corporate debt, especially in the US, is trading with the skinniest risk premium compared with treasuries in several decades.
The volatility we see is much more likely to stem from underlying government debt than company-specific shocks.
We are not yet at the point where nice dull French corporate debt or historically spicy Italian government bonds are a globally recognised haven asset. But signs of the failure of standard safety procedures in markets today are a reflection that everything investors hold dear is now open to question. In the next big crisis – and there will be one – it may well be that all bets are off. – Copyright The Financial Times Limited 2025
