US Treasury investors should start paying attention to French bonds! Strategists warn: Budget disputes are back in focus, and investors need to be highly vigilant about the risk of transmission from Europe.

France's budget crisis has escalated again, with sovereign debt risk becoming a key focus of the market. As French bond spreads continue to widen, investor concerns about the country's fiscal sustainability are intensifying.

Bloomberg macro strategist Simon White points out that while France's debt problems are certainly cause for concern, the US fiscal fundamentals are actually more fragile. For US Treasury investors, the changes taking place in the French bond market may be more like a stress test being conducted ahead of time.

Data shows that the US government debt-to-GDP ratio has reached 122%, and the fiscal deficit-to-GDP ratio is 5.6%, both higher than France's 113% and 5.1%, respectively. Meanwhile, annual interest payments in the US have exceeded $1 trillion, and fiscal pressure continues to accumulate.

More concerning is that, excluding interest payments, the US still has the largest primary deficit among major economies. Simon White believes that if the US fails to advance fiscal integration, the dollar's reserve currency status and the "safe asset" status of US Treasury bonds may face greater challenges.

France's debt pressure continues to escalate, while the US fiscal fundamentals are more fragile.

Pressure in the French government bond market is being released in a concentrated manner. As the vote on the Macron government's final budget bill approaches, the spread between French and German bond yields continues to widen, while the sharp decline in asset swap spreads provides a more direct market signal that investors are becoming more cautious about French sovereign debt.

France's fiscal situation is already under pressure: its debt-to-GDP ratio has reached 113%, and its fiscal deficit is 5.1% of GDP. If the budget bill fails to be approved by parliament, the government will face pressure to further expand its financing, and France's debt risks may be further exposed.

However, Simon White believes that the fiscal landscape of the United States is more alarming than that of France.

The US debt-to-GDP ratio has reached 122%, and the fiscal deficit is 5.6% of GDP, with total annual interest payments exceeding $1 trillion. More importantly, excluding interest payments, the US primary deficit is the largest among major economies, indicating that its fiscal imbalance is not simply caused by high interest rates, but has more pronounced structural characteristics.

The persistent primary deficit means that as long as the primary balance of payments cannot turn into a surplus, or as nominal GDP growth remains below the government's financing costs for an extended period, the US debt burden will continue to accumulate. Inflation and low interest rates can only provide temporary relief and cannot fundamentally resolve the fiscal imbalance.

The US fiscal advantage is being eroded.

Compared to France, the United States still possesses two significant advantages: an independent monetary policy and the dollar's status as the global reserve currency. These factors grant the United States greater financing capabilities and fiscal buffers.

However, Simon White believes these advantages are gradually weakening. On the one hand, the Federal Reserve's monetary policy is becoming increasingly susceptible to fiscal demands; on the other hand, the current policy orientation of the US government is also undermining external confidence in the dollar's status as a reserve currency.

If rigid fiscal consolidation remains difficult to advance, the United States may gradually move toward a predicament similar to that of France: when debt expansion and political constraints reinforce each other, the market will eventually worry not only about the fiscal deficit itself, but also about whether the government still has the ability and the willingness to stabilize the debt.

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