Writing for Nine newspapers, senior business columnist Stephen Bartholomeusz warns that bond investors, who have been scanning the debt-laden global economy for weak points, have firmly placed the US, Japan and the UK on their watchlist. But it is France that has now emerged as the most immediate danger.
Yields on French government bonds have soared, reflecting growing concern about the country's ability to service its debt. The premium investors demand to hold French bonds over German bunds – the eurozone's benchmark safe asset – has blown out dramatically, approaching levels last seen during the sovereign debt crisis that shook the currency bloc more than a decade ago.
The term 'FROGS' has been coined by market participants to capture the scale of the problem: an oversized government sector and a social security system that investors view as unsustainable in its current form.
Bartholomeusz notes that while bond markets have long worried about the fiscal trajectories of several advanced economies, the speed and severity of the sell-off in French debt has caught many by surprise. The crisis threatens to become a European – and potentially global – financial contagion event.