UBS's Strategic Long Position in 30-Year France Government Bonds: Navigating Macroeconomic Tailwinds and Yield Curve Dynamics

In Q3 2025, UBS has positioned itself with a strategic long stance in 30-year French government bonds, a move rooted in a complex interplay of macroeconomic tailwinds, yield curve dynamics, and geopolitical risk mitigation. This positioning reflects the firm’s broader thesis of capitalizing on divergent global fiscal trajectories and the search for yield in an environment of heightened uncertainty.

Macroeconomic Tailwinds: Trade Tensions and Fiscal Divergence

The U.S. fiscal outlook has become a critical driver of global bond markets, with 30-year Treasury yields surging above 5% in 2025 due to concerns over unsustainable debt growth and the potential for financial repression [1]. Simultaneously, escalating U.S. tariff policies have exacerbated global trade tensions, prompting investors to reevaluate risk exposures. European sovereign bonds, particularly those of stable economies like France, have emerged as attractive alternatives to U.S. assets. According to a report by the European Central Bank, markets have repriced risk premiums amid fears of slower global growth, with European bonds benefiting from their perceived safety amid geopolitical fragmentation [2].

France, however, faces its own challenges. Political instability, epitomized by the no-confidence vote against Prime Minister Barnier and the subsequent dissolution of parliament, has driven French 10-year bond yields to levels not seen since the Eurozone debt crisis [3]. Meanwhile, 30-year yields have surged to 16-year highs, reflecting investor concerns over long-term fiscal sustainability [4]. UBS’s long position in these bonds appears to hinge on the expectation that political normalization—such as a stable government post-September 8—could lead to a correction in yields, particularly if the European Central Bank introduces accommodative measures to stabilize the Eurozone.

Yield Curve Positioning: A Bet on Normalization

The French yield curve has steepened significantly in 2025, with the spread between 30-year and 10-year bonds widening to historic levels. This divergence suggests that investors are pricing in prolonged fiscal challenges in the short term while retaining hope for medium-term stability. UBS strategists, led by Julien Conzano, have explicitly recommended shorting 10-year French bonds against euro swaps ahead of the September 8 confidence vote, citing peak uncertainty [5]. However, their broader fixed-income strategies indicate a preference for long-duration assets, including 30-year bonds, as a hedge against a potential policy-driven rate decline.

This approach aligns with UBS’s macroeconomic outlook for 2025, which anticipates a global shift toward lower interest rates and a re-rating of risk premiums in European sovereign debt. As stated in the firm’s Year Ahead 2025 report, investment-grade bonds—particularly those with long-duration characteristics—offer attractive capital gain potential amid divergent monetary policies between the U.S. and Europe [6]. The firm’s HFS Broad-Based Diversified strategies have historically benefited from curve steepener positions, a tactic that could pay off if French 30-year yields normalize following political or fiscal stabilization.

Strategic Rationale: Diversification and Risk Management

UBS’s positioning in French 30-year bonds also serves as a diversification tool within a broader portfolio. With U.S. Treasury yields at multi-decade highs and global trade tensions persisting, long-duration European bonds provide a counterbalance to U.S.-centric risks. A report by Capitaleconomics notes that while Germany’s fiscal expansion has pushed up bond yields, France’s deteriorating fiscal position has created a unique opportunity for investors seeking yield in a stable Eurozone economy [7]. UBS’s long-term horizon suggests confidence in France’s ability to manage its deficit and debt trajectory, even as short-term political risks remain elevated.

Conclusion: A Calculated Bet on Stability

UBS’s strategic long position in 30-year French government bonds is a multifaceted bet on macroeconomic normalization, yield curve re-equilibration, and geopolitical risk diversification. While the firm has explicitly advised shorting shorter-dated French bonds ahead of political uncertainty, its broader allocation to long-duration assets underscores a belief in the eventual stabilization of both France’s fiscal outlook and global trade dynamics. As the September 8 confidence vote looms and the ECB weighs its next steps, UBS’s positioning highlights the delicate balance between risk and reward in today’s fragmented markets.

Source:
[1] US fiscal outlook and the effort to contain bond yields [https://www.ubs.com/us/en/wealth-management/insights/investment-research/potus-47/articles/us-fiscal-outlook.html]
[2] Financial Stability Review, May 2025 - European Central Bank [https://www.ecb.europa.eu/press/financial-stability-publications/fsr/html/ecb.fsr202505~0cde5244f6.en.html]
[3] Here's how UBS recommends positioning ahead of French confidence vote on Sept 8 [https://www.investing.com/news/stock-market-news/heres-how-ubs-recommends-positioning-ahead-of-french-confidence-vote-on-sept-8-4224702]
[4] France's 30-year government bond yields hit 16-year highs on fiscal concerns [https://www.tradingview.com/news/reuters.com,2025:newsml_L1N3UP08U:0-france-s-30-year-government-bond-yields-hit-16-year-highs-on-fiscal-concerns/]
[5] UBS Year Ahead 2025: Roaring 20s – The next stage [https://www.ubs.com/global/en/media/display-page-ndp/en-20241121-year-ahead-2025.html]
[6] Divergence creates opportunities in global investment grade in 2025 [https://www.janushenderson.com/corporate/article/divergence-creates-opportunities-in-global-investment-grade-in-2025/]
[7] Thirty-year EZ bond yields are not such a worry [https://www.capitaleconomics.com/publications/europe-economics-weekly/thirty-year-ez-bond-yields-are-not-such-worry]