Australia’s second-biggest pension fund is buying French government bonds on the view that markets have overpriced France’s fiscal troubles and the prospect of European Central Bank interest-rate hikes.

Australian Retirement Trust began adding 10-year French debt in September as yields climbed past 4.5%, according to Jimmy Louca, a senior portfolio manager. It stepped up purchases during the October rout as worries over France’s fiscal credibility and political instability pushed yields to 5%, the highest since 2002.

“We think the market has priced in too much on both fronts – the extent of the ECB hiking cycle and the fiscal deterioration likely to unfold over the cycle,” Louca said in an interview. His firm manages about A$370 billion ($260 billion).

France’s debt woes are stirring memories of the euro-zone crisis, as political turmoil and street protests complicate efforts to rein in a swelling debt burden. ART’s buying stands out as many investors pull back, with bets on more ECB hikes further sapping demand. The unease has spilled into the euro, making it the worst performer against the dollar among its Group-of-10 peers this month.

ART’s overweight position in French bonds is part of its dynamic asset allocation program, which seeks to buy markets when they become cheap or dislocated relative to the fund’s estimate of fair value. As a long-term investor, it aims to buy low and sell high to pursue returns for members, Louca said.

The rise in French yields above 5% in October pushed them further above the firm’s assessment of fair value, prompting it to add exposure during the recent market dislocation, he said.

The selloff, according to Louca, reflects a sharp repricing of fiscal risk. The gap between 10-year French and German yields doubled since early September to around 170 basis points last week, the widest since the 2011 euro debt crisis.

Investors are particularly focused on the nearer-term risk that opposition to the government’s €54 billion ($61 billion) fiscal plan could derail efforts to repair public finances. But Louca said both the government and National Rally will ultimately take deficit-reduction plans into the 2027 elections.

France obtained some short-term respite after dodging a sovereign rating downgrade by Moody’s Ratings on Friday and avoiding a repeat of large-scale violence and looting over the weekend. Futures on France’s 10-year notes climbed 68 ticks to 108.31 on Monday.

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ART also thinks markets may be overestimating how far the ECB will need to raise rates. Higher energy prices are pushing up inflation now, but they also squeeze incomes and growth, which the fund expects will eventually cool inflation and pull yields lower.

France is one of several overweight positions in its program, along with Australia and the UK, where ART also sees inflation and fiscal concerns as overpriced. It remains slightly underweight the US and Japan, where it sees strong growth and inflation as not fully reflected in government bond yields.

Louca pointed to Europe’s recovery from the last debt crisis as a reason to take a longer view on France.

“While the road may be more bumpy and take longer than short-term investors would like, it is important to note that Greece and Italy are now running primary budget surpluses, something that was almost inconceivable at the time,” he added.