Why are French bond yields NOT surging?

France's fiscal situation is deteriorating, with the French National Debt at 110.8% and the budget deficit 5.5% of GDP. But President Macron is loathe to do anything about it, as French unemployment stands at 7.5% and he doesn't want to send it higher.

In any other country, bond yields would surge - see the bond market's reaction to the American national debt. But French bond yields are low; the 10-year yield is just 2.992%. Here is the chart:

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What's keeping the yield down? Forced buyers. Banks and other financial entities in the eurozone need to buy euro-denominated safe assets to park their reserve capital.

The safest assets are triple A rated government bonds. In the eurozone, only Germany, the Netherlands and Luxembourg are AAA rated - but they arn't issuing many bonds. Instead they're running tight budgets. So investors have to settle for AA bonds. These are issued by France, Finland, Ireland and Austria. Of these, the French bond market is the biggest pool, as France is a big country and their govt is issuing plenty.

But what happens if the rating agencies downgrade French debt? These forced buyers will disappear and bond yields will rise.

Last December, Standard & Poor downgraded France to a negative outlook. If things don't improve they'll go to AA-. Then the fun starts.