Nearly €215 billion ($241 billion) of France’s corporate bonds now trade as if they were safer than the government’s, an almost 18-fold increase since the start of 2026, after a punishing sovereign debt selloff.

Some 38% of France’s total pool of high-grade company debt was indicated at lower yields than government securities of similar maturity on Wednesday, according to data compiled by Bloomberg. That compares with just €12 billion at the start of the year.

The topsy-turvy dynamic in traditional market hierarchies is not entirely new, but has escalated rapidly in France amid concerns about missed deficit targets, gridlock over a new budget, and a looming presidential election which could set the country in a radically different direction.

As confidence in government debt erodes, corporate bonds — especially for internationally-exposed firms like L’Oreal SA and oil and gas giant TotalEnergies SE — are now one of the safest havens.

“France’s sovereign story and its corporate credit story have become increasingly disconnected,” said Elisa Belgacem, senior credit strategist at Generali Investments. Companies and banks “continue to enjoy strong investor demand, highlighting confidence in issuer fundamentals and the attractiveness of all-in yields.”Paris-based Air Liquide SA is the latest case in point. The industrial-gas maker drew around €12.5 billion of investor orders for a €2 billion debt offering on Tuesday, with the two fixed-rate tranches offering lower yields than French government bonds.

For Edward Farley, head of European investment grade corporate bonds at PGIM Ltd., the key factor is where companies generate their revenues. For L’Oreal and LVMH Moët Hennessy Louis Vuitton SE, for example, “other than the fact that they’re domiciled in France, that’s about as material as it gets,” he said.

Farley is more cautious about French banks, however, which are more closely linked to the government bond market. Banks have skin in the game either through holdings of sovereign debt or by their loans being exposed to the indirect effect of economic policies, and the cost of insuring French bank bonds against default has been surging above that of other European lenders.

While France is an extreme case of a corporate-government bond inversion, the dynamic has been brewing in developed economies for some time.

Traditionally, sovereign debt was the benchmark for safety in the bond market as governments have the ability to raise taxes when they run short of funds. But as national deficits continue to grow, and politicians of all stripes struggle to reign them in, companies with strong balance sheets and fiscal discipline look like a better bet.

Last year, Microsoft Corp. briefly traded cheaper than Treasuries amid concerns about the impact of US tax cuts on the budget. Further back, during the euro zone sovereign debt crisis, some Spanish and Italian corporate bonds were cheaper then those of their governments. It’s also a situation that emerging market investors have to deal with more frequently.

In France, political uncertainty has been a persistent feature of the bond market since mid-2024, when President Emmanuel Macron called a snap election after his party suffered a heavy defeat in European parliamentary elections. By the end of that year, a small number of companies had started trading at lower yields than French government bonds, or OATs.

But the phenomenon has now become much more pervasive, and the tally of corporate bonds may keep growing. France’s election is still more than six months away, while the bond selloff is already spilling over into other markets.

A typical scenario where the domestic government bond curve acts as a floor for the credit market “can break down during periods of sovereign stress,” according to Barclays Plc credit strategist Melissa McCallum.

“What stands out, though, is that it is not just high quality credit that has broken below the OAT curve, as many BBBs also trade tighter,” she said.