Author Robin J Brooks said France’s bond sell-off is raising contagion risks across the high-debt eurozone, while U.S. Treasuries attract safety flows and Japan benefits as yen carry trades unwind.
Published Oct. 23, Brooks’ post puts Italy at the center of the eurozone spillover risk and says Spain could also face pressure.
Brooks compared cumulative changes in 10-year government bond yields from Jan. 1, 2026, through Oct. 22, using an equal-weighted average of daily yield changes across the countries in his comparison. Germany, Sweden and Switzerland recorded smaller yield increases than that average, extending their relative outperformance this year. Canada and Australia showed a milder version of the pattern. France’s 10-year yield increase remained a clear outlier.
Brooks traced the French selling to investor positions formed in June, when markets expected oil prices to remain low after the United States and Iran signed a memorandum of understanding. He said foreign inflows into French government debt reached a record that month, and argued that those positions are now being unwound.
He described the United States and Japan as benefiting from safety demand, linking Japan’s gains to the yen carry-trade unwind. Brooks said falling oil prices could ease pressure on the French bond market and forecast eventual European Central Bank intervention, without specifying when or how it would happen.
As precedents, Brooks cited Japanese debt-market strains in January and a steepening of the U.S. yield curve in August after the July 29 Federal Reserve meeting. He also argued that high-debt governments’ attempts to cap yields support what he calls the “debasement trade.”
