The five-year French government bond yield surpassed Italy for the first time since 2005, restructuring the order of the eurozone bond market.

This week, the eurozone bond market witnessed a historic turning point: the five-year bond yield of France surpassed that of Italy for the first time since 2005, becoming the highest-yielding variety among the major economies in the eurozone, second only to Latvia on the European continent. This phenomenon marks an accelerated dissolution of the traditional "core-periphery" bond market division, with market focus shifting to when the ten-year bond yields of France and Italy will converge. Christoph Rieger, Head of Rates and Credit Research at Deutsche Bank, pointed out that the current political deadlock and fiscal reform impasse in Paris have substantially impacted the attractiveness of French debt. As a traditional "safe asset" in the eurozone, French bonds are now priced at the same risk level as Italy, known for its loose fiscal policy. The yield spread between Italian and French ten-year bonds has narrowed to 17 basis points, the lowest since 2007, significantly reducing the gap of almost 200 basis points from three years ago. Although the French five-year bond has a longer maturity than similar Italian bonds by half a year (implying additional term risk), this technical factor cannot explain the core logic behind the inverted yield curve. Market analysis suggests that the reassessment of value this time reflects a role reversal between the southern and northern European economies: southern countries like Italy, through structural reforms, transform their previously rigid economies into growth engines for the eurozone, leading to significant improvements in their bond market performance. Meanwhile, since the unexpected parliamentary deadlock in France last year, fiscal reform efforts have stalled, and political uncertainty has led to bond sell-offs. It is worth noting that the benchmark bond yield of France has surpassed that of Greece and Portugal, both of which were deeply embroiled in the sovereign debt crisis, making it the weakest-performing bond market among the core eurozone countries. Rieger emphasizes that the current challenges facing the French bond market are "unprecedented in terms of fundamentals and political background." With the shift in the ECB's monetary policy, market sensitivity to the fiscal sustainability of each country has increased, reshaping the pricing logic of traditional safe assets. In this inverted bond market, countries like Italy and Greece, considered "high-risk" in the past, have become beneficiaries, gradually gaining investor recognition for their reform efforts.