Federal Reserve Governor Kevin Warsh’s silence on an October rate hike has shifted market expectations toward December, even as French borrowing costs and AI-related credit risks climb. In his October 19, 2026 commentary, Stephen Coltman, Head of Macro at 21shares, highlighted the contrast: easing US Treasury yields, mounting pressure on French debt and widening credit spreads among heavily indebted AI companies.
Key takeaways
- Markets again expect an October Fed hold, with a possible hike deferred to December.
- France’s borrowing premium over Germany is approaching 150 basis points.
- Oracle’s credit spreads are moving closer to high-yield levels.
Kevin Warsh leaves Federal Reserve hike expectations pointing to December
Markets expect the Federal Reserve to hold rates at the end of October after Kevin Warsh gave no signal preparing investors for an imminent increase, Coltman wrote. The prospect of a hike has shifted to December 2026.
Higher-than-expected core inflation in the previous week’s CPI release had prompted markets to price in another increase at the October FOMC meeting. But Warsh did not reinforce that possibility during a public interview at the IMF meetings—his final appearance before the Fed’s quiet period.
Coltman expects no further public remarks from Fed officials before the FOMC meets at the end of October.
France’s debt strains deepen as US yields fall
French government bonds are moving against other major developed markets, with the 10-year OAT spread over German Bunds approaching 150 basis points, according to Coltman. Since the start of October, the US 10-year Treasury yield has fallen about 20 basis points while French yields have continued rising.
On October 19, France’s 10-year yield jumped more than 10 basis points, while its two-year and 30-year yields rose 6 and 8 basis points, respectively. The CAC 40 fell 1.7% in afternoon trading. French benchmark borrowing costs were touching their highest level since 2002.
Political uncertainty and difficult budget negotiations are compounding the pressure. Prime Minister Sébastien Lecornu’s minority government faces obstacles to passing its 2027 budget, which includes a proposed €54 billion in spending cuts. France’s deficit stood at 5.1% of GDP last year; the government is targeting 5%, with a goal of reaching 3% in 2029.
Banque de France Governor Emmanuel Moulin said on October 15 that political uncertainty, rather than a changed fiscal position, was driving higher borrowing costs. Debt servicing costs about €10 billion more annually, he said, complicating consolidation. He nevertheless described France’s financial sector as well capitalized and liquid and said the country had no difficulty finding bond buyers. KBRA’s senior director of sovereigns, Ken Egan, also cited solid underlying demand at the previous week’s auctions.
Coltman takes a more cautious view, describing a sovereign debt crisis that is unlikely to stabilize without first worsening. He considers ECB intervention unlikely unless the stress threatens euro-area bond-market stability. Goldman Sachs senior European equity strategist Sharon Bell similarly said current conditions did not warrant emergency intervention, but disruption to market liquidity would warrant use of the ECB’s Transmission Protection Instrument.
Coltman also sees Marine Le Pen’s strengthened presidential prospects creating potential structural tensions in Europe in 2027, particularly given her willingness to reduce France’s EU budget contribution unilaterally.
AI spending tests meet widening credit spreads
Investors are watching Meta and SpaceX earnings, alongside public information about Anthropic’s IPO, for evidence of AI investment spending, Coltman wrote. At the same time, widening credit spreads are exposing vulnerabilities among heavily indebted AI-related businesses.
Those companies are particularly vulnerable to a slowdown in AI demand, his commentary argues. Oracle stands out: its five-year CDS spreads have widened sharply and now trade closer to those of high-yield borrowers than investment-grade issuers.
Coltman warned that a downgrade of Oracle to speculative grade would make it by far the largest high-yield bond issuer, given its total debt. That scenario would absorb a large share of available capital and potentially crowd out smaller borrowers. His assessment concerns a potential downgrade; the credit-market development he identifies is the sharp widening in Oracle’s CDS spreads.
Article produced with the assistance of artificial intelligence and reviewed by the editorial team.