"Investors are increasingly wondering which government bonds from developed markets continue to constitute safe havens. In my opinion, they are right to do so." This is what lies behind the movements in the European debt market, which has been sending worrying signals for months, according to Ronald Temple, chief market strategist at Lazard.
The escalation of France's risk premium is the most relevant data point. The spread between the French government bond and the German bund has widened by 81 basis points (bps), to 137 bps, between the start of the Iran war and October 5, levels not seen since the eurozone debt crisis of 2011-2012. Temple recalls that the yield spreads of sovereign bonds from peripheral European countries compared to Germany, which soared when the Greek debt crisis triggered fears of chain defaults, subsequently generally converged again. Therefore, the recent widening in France, Italy, and Spain "is raising concerns about a underlying change in market confidence," he states.
The Lazard strategist highlights that France "is leading, in the wrong direction," in a context of rising debt (the net debt to GDP ratio reached 117.6% in the first quarter of 2026) and political uncertainty (the country has had four prime ministers in the last five years, largely due to its inability to agree on fiscal measures that sufficiently reduce the public deficit). With difficulties in reaching a deficit target of 5% of GDP and a nominal growth of 3%, the country's debt/GDP ratio "seems destined to increase even further" and, "to worsen the situation," the commitment to increase its defence spending to 2.2% of GDP in 2025 "suggests that meeting future budgetary targets will be even more difficult unless significant structural reforms are implemented," he explains.
Italy, whose spreads have reached 113 bps (a 16-month high), has followed a more fiscally responsible trajectory in recent years and has enjoyed a relatively stable internal political context, but its government is one of the most indebted in the developed world: the debt/GDP ratio, "its main challenge," stood at 138.9% in the first quarter of 2026.
In the case of Spain, the spread is at 63 bps. Temple argues that it is the best positioned country of the three, given that its real GDP growth rate (3.8% on average over the last 5 years), largely driven by high levels of immigration, has allowed it to reduce its debt/GDP ratio to 101.6% in the first quarter. The expert acknowledges, however, that the early elections on 29 November "could lead to less positive fiscal prospects, depending on the composition of the resulting government coalition."
For the strategist, Germany is a case apart as it is one of the main issuers of low-risk sovereign debt globally and the benchmark against which other European governments are compared. "It faces its own internal political risks, but with a debt/GDP ratio of 64.4% as of the first quarter of 2026, it stands out well above the other major economies in the eurozone," he justifies.
Temple emphasises that investors find it difficult to trust any country with a high debt/GDP ratio and recurring annual deficits that cause its debt to keep growing. "Spain has been making progress and could continue to do so, but investors are losing patience with France and Italy. Given that geopolitical risks force governments to drastically increase defence spending, the fiscal flexibility of European governments is shrinking and bond investors are showing great concern," he concludes.
