French bonds now scare markets more than Italian BTPs, El-Erian says Rome beats Paris

Investors have, for some time now, gone back to treating French OAT government bonds as riskier than Italian BTPs.

The message that Italy is now considered safer than France comes directly from the trend in yields: French 10-year bonds have for a while now been trading above their Italian counterparts, at 4.21% today versus 4.17% for Italian bonds. And it’s none other than Mohamed El-Erian, the former CEO of Pimco, who put it plainly in an interview with Italian daily La Stampa: “Rome reassures more than Paris.”

BTP and OAT: what the Financial Times and El-Erian are saying — Rome reassures more than Paris

The BTP-OAT spread, also known as the Italy-France spread, has turned negative again, which means markets now consider Rome safer than Paris. The Financial Times made the point clearly in a piece titled “France’s debt crisis-in-waiting,” writing that “markets are treating France a bit more like Italy.”

Not exactly a compliment for Italy, given it refers to the repeated attacks that bond vigilantes have historically launched against its BTPs.

Mohamed El-Erian also voiced concern about France, telling La Stampa that “Rome reassures more than Paris” and repeating the point on CNBC: “At one point people would have worried about Italy. Today Italy trades at more favorable levels than France, and the attention has shifted to one of the eurozone’s two core countries, not its periphery,” the investor noted, calling it “fascinating to see how much things have changed compared to what we were used to in the past.”

BTPs and OATs are both under sell-off pressure, but markets see France as the bigger risk

To be clear, BTPs are not exactly having an easy time either. Like other sovereign bonds around the world — starting with US Treasuries, UK Gilts and Japanese JGBs — Italian government bonds have come under heavy sell-off pressure in recent weeks, as markets price in a renewed acceleration of inflation, driven by fresh spikes in oil prices, and the prospect of further rate hikes from central banks, above all the European Central Bank and the Federal Reserve.

Italian yields have made headlines in recent days for their repeated jumps, with the 10-year BTP breaking through the 4.20% threshold, confirming concerns about the outcome of the BTP and BOT (Italy’s short-term treasury bills) auctions due in September.

Italy’s Treasury (MEF, the Ministry of Economy and Finance) could, under current conditions, be forced to issue new bonds at even higher yields, adding upward pressure on the cost of servicing Italy’s debt.

That said, France undeniably scares markets more than Italy right now. While some analysts remain broadly positive on BTPs — several fund managers still consider them attractive — OATs are frequently the subject of negative assessments, reflecting persistent concerns about France’s public finances.

A negative Italy-France spread: comparing deficits and debt

A negative BTP-OAT spread isn’t actually new: the differential has dipped below zero on several occasions in recent years, driven by France’s repeated government crises and collapses, and by fears over its deficit and GDP growth.

Back in 2025, France’s deficit-to-GDP ratio climbed to 5.1%, far above the 3% ceiling set by Brussels and well above Italy’s 3.1% (both economies remain under the EU’s excessive-deficit procedure).

Paris’ debt-to-GDP ratio has crossed 115% and is projected to climb further. In July, the International Monetary Fund said French debt would rise to 118.5% of GDP in 2026, surpass the 120% threshold in 2027, and stay above that level through 2030.

Debt-to-GDP remains a burden for Italy too: the IMF also projects an upward trajectory there, from 137.1% in 2025 to a range of 138.3%-138.8% of GDP in 2026-2027. Italy’s public debt, however, is expected to start declining from 2028.

It’s also worth noting that while BTPs have repeatedly outperformed — and still outperform — OATs, the real “overtaking” that’s been discussed for years is that of Greek government bonds, which have long been considered safer than both Italian and French debt.

The proof, once again, comes from yields (given the inverse relationship between bond prices and yields): Greek 10-year yields, at 4.02%, are lower than both the 4.17% on BTPs and the 4.21% on OATs (as of Friday, September 4).

The FT: let’s not pretend Italian BTPs have become a safe haven

Turning back to France’s troubles, the Financial Times noted that in August the yield on Italy’s 30-year BTP averaged 0.01 percentage points below that of the equivalent French OAT, adding this caveat:

“Let’s not pretend that this means Italian BTPs have become a haven asset: Italy’s debt burden remains larger than France’s. But the numbers suggest that investors are re-rating French political risk, ahead of an expected budget in October and next spring’s presidential election.”

OAT yields: the FT’s reference to Mario Draghi’s “whatever it takes”

The City’s paper of record noted that “France’s fiscal position is hardly a new problem,” pointing out that the country has posted troubled public finances in nearly every year since the euro’s creation, breaching the currency union’s deficit rule more than 20 times, with its debt-to-GDP ratio sitting above the limit continuously since 2003.

But today, the Financial Times continued, referencing the jump in yields, French yields are comparable to levels seen during the eurozone sovereign debt crisis of 2009-2012 (though, in general, the same holds true for almost every other eurozone country).

What’s more, the FT argues the real problem is the movement in the OAT-Bund spread — the difference between the yield on French bonds and German Bunds.

“The French 10-year OAT yield is about 0.87 percentage points above that of German Bunds, or roughly 0.4 percentage points above the average recorded since Mario Draghi’s 2012 speech pledging to do «whatever it takes» to save the euro. Put in more technical terms, the current spread sits in the 99.8^th percentile of spreads recorded since Draghi’s speech: meaning it has very rarely been this wide since then.”

Foreign investors fleeing France — is the FT inadvertently vindicating Meloni’s strategy?

Another vulnerability, according to the FT, lies in the OAT investor base, more than 60% of which is made up of foreign investors, compared with roughly a third of Italian debt:

“These investors could be quicker to flee the market,” the paper warns, citing a comment from Larissa de Barros Fritz of ABN Amro, who estimates that about 35% of OAT holders are price-sensitive.

That means it wouldn’t take a major sell-off to put French bonds under further pressure: “Even a modest reduction in demand from marginal buyers could already put upward pressure on yields.”

Reading the FT’s piece naturally raises a question. In warning of a potential exodus of foreign investors from OATs, is the Financial Times inadvertently vindicating the strategy of Italian prime minister Giorgia Meloni’s government — condensed in her call for “more government bonds in the hands of Italians,” which took shape through the BTP Valore retail bond program and its BTP Più and BTP Italia Sì variants?

BTPs are certainly no haven asset. But even El-Erian is signaling that the real problem in the eurozone government bond market today is no longer Rome. It’s Paris — France, now a former poster child of fiscal virtue in Europe.

Editor’s note

This article was originally published in Italian on money.it by Laura Naka Antonelli on September 04, 2026 as «Gli OAT fanno più paura dei BTP. Per El-Erian meglio Italia che Francia». It has been translated and adapted for an international audience by the Money.it International desk.