Daniel Saurenz: USA and France in a race of losers

In Japan, interest rates on long-term government bonds have literally exploded in recent months. In the US, the Federal Reserve is doing everything it can to ensure that 30-year US bonds do not sustainably exceed the five percent mark. In contrast, the euro is trading at $1.17 against the US dollar and is beginning to target the $1.20 mark. At 173 yen against the Japanese yen, the euro is at its most expensive since the 1990s.

This strength may come as a surprise considering the crises in Europe. In Germany, six months after the federal election, the government is divided between social policy and tax issues. In France, one crisis follows another. President Macron is noticeably weakened, and his former prime minister, Bayrou, was quicker to raise the vote of confidence than some had feared.

The stock market also reflects the dismal picture presented by the French. "Since the beginning of the year, our data show an increase of more than 25 percent for Spain and a gain of 22 percent for Italy. France is far, far behind with a mini-gain of four percent," says Lars Reichel of the Munich Stock Exchange. In a normal stock market year, a four percent drop in September wouldn't be a disaster – but 2025 has so far been an outstanding year for stocks in Europe.

But Europe currently feels like a concert hall in which government bonds form the orchestra. Except: some instruments are just sounding off-key. "At the beginning of September, the yield on 30-year French bonds rose above 4.5 percent for the first time since 2011," says Jürgen Molnar of the broker Robomarkets. As recently as June, the yield was less than four percent. "At the same time, the gap to Italian bonds shrank to a level last seen in 1999," says the expert, and that's what makes it truly striking. Italy was actually the European patient – ​​until Georgia Meloni came along and governed in a conspicuously unobtrusive manner.

Schaeffler CEO Matthias Zink represents the European automotive industry at the automotive summit with EU Commission President Ursula von der Leyen. Zink calls for a move away from the 2035 phase-out of combustion engines and comprehensive government support for e-mobility.

The spread is also unusual, as countries with solid credit ratings actually pay significantly lower interest rates than risky countries. The fact that France's financing is barely cheaper than Italy's demonstrates that investors increasingly view Paris as a shaky candidate. And this impression is reinforced by the chaos surrounding Prime Minister François Bayrou.

State Street's Timothy Graf analyzes it this way: "We view the current volatility in French politics and the widening of spreads as a serious local issue, but one that is unlikely to pose an immediate existential challenge for Europe. Institutional investor support for French assets has been muted over the past three months, and we have continued to observe very weak capital flows in both equities and bonds for several weeks."

Against this backdrop, it's not surprising that the yields on French government bonds (OATs) are now noticeably higher than those on German Bunds. Political uncertainty, looming confidence votes, and a less than convincing fiscal stance are driving this. The spread to Germany is reminiscent of the summer of 2024, when President Macron called for new elections. The gaps are still smaller than during the euro crisis, but without a willingness to reform, the gap could widen further.

The ECB does provide a safety net with the Transmission Protection Instrument (TPI), but as with insurance, it's better not to rely on it. For the euro, this has so far been nothing more than a quiet background noise. Only if yield spreads rise very quickly and sharply could the currency come under pressure and capital flow out. "We don't believe this will lead to a weakening of the euro, as many other currencies are facing similar political challenges as France," says Timothy Graf.

Following a massive jump in his company's share price, Oracle founder Larry Ellison surpassed Elon Musk as the world's richest man on Wednesday. Here's what you need to know about the contentious and eccentric entrepreneur.

That the situation can be brought back under control is demonstrated by a country that was completely written off a good ten years ago – and its bonds with it: Greece. The country that once destabilized the euro is suddenly seen as a model student. Investors poured almost as much into Greek bonds in the first half of the year as they did in the entire previous year. New bonds were often oversubscribed, and the interest burden remains surprisingly low despite high overall debt because old loans have long maturities and carry minimal interest rates. In addition, the economy is growing at more than two percent – ​​remarkable by Eurozone standards. Ironically, Athens can now finance itself more cheaply than Paris or Rome.

In the overall European picture, Germany remains the steady anchor: Ten-year Bunds yield around 2.8 percent, while France and Italy are trading closer to 3.6 percent, according to data from Smartbroker, where active investors are increasingly considering investing in bonds. Great Britain stands out with almost five percent – ​​political risk factored in. For investors, this means: Bunds remain solid, France offers higher returns with higher risk, Greece is surprising on the upside, and Gilts are a bet for the bold. Or to put it more simply: Not every off-key note means the concert is over.

>> The Week – Newsletter <<

The most important topic of the week in business, finance, and politics – concisely categorized by Capital editor-in-chief Timo Pache. Every Friday, free of charge, and with plenty of reading tips for the best Capital stories of the week.

You can subscribe to the newsletter here

Given the recent rise in yields, it's worth taking a look at the Buxl. The Buxl is, in a sense, the "big brother" of the well-known Bund future. While the latter tracks German federal bonds with medium maturities of around 8.5 to 10.5 years, the Buxl bundles securities with very long maturities between 24 and 35 years. This makes it more sensitive to interest rate movements – even small changes have a stronger impact on the price. Particularly exciting: The long end of the yield curve has so far shown no real calm. This is precisely where the Buxl comes in – which active investors can trade with leveraged securities, for example, with issuer Morgan Stanley. And speaking of the USA – despite France, the strength of the euro is due to the fact that trust in the French is not great, while trust in the solidity of the Americans is currently even lower. Macron somehow still beats Trump.