France's Economy Is a Mess, Yet Investors Buy Its Bonds

French President François Hollande called the financial-services industry his “greatest adversary” when he campaigned for the presidency last year. He’s now finding that the market is his only friend. One year into a five-year term, Hollande has found his popularity already at a record low, and his economic policies have drawn the ire of his own Socialist Party and other allies. France’s slump is deepening, and joblessness is at an all-time high.

Investors, though, have piled into French bonds, giving Hollande’s government record-low borrowing costs. On May 2, France auctioned 10-year debt at a yield of 1.81 percent. The spread between French and German 10-year debt—a measure of how risky French bonds look when compared with their German equivalent—is 54 basis points. That’s down from the 144 basis-point premium investors put on German bonds when Hollande was sworn in on May 15 last year.