Who would you lend to?

The yield on French 10-year bonds fell to the lowest in 12 months of 1.873 percent last week. At that level, France’s borrowing costs are 74 basis points below those of the U.S. and 82 points less than the U.K. The premium France pays over Germany is down to 45 points, from 72 points in January which I find extraordinary.

Still, some investors urge caution on big bets against French sovereign bonds even as the economy struggles to emerge from two straight years of stagnation.

The bond market’s performance belies the anemic recovery in France relative to those countries and mounting political discontent that may limit Hollande’s ability to deliver on promised cuts in public spending and taxes. ECB President Draghi said May 8th that policy makers are “comfortable” taking further action in coming months in the face of regional inflation that is well below the central bank’s target.

The European Commission expects France to grow 1 percent this year, compared with almost 3 percent for the U.K. and U.S. and 1.8 percent for Germany and despite this and the fact that the UK and US can print their own currency (if required) the market still believes the risk of default is greater.