On Tuesday, October 6th, the core market contradiction is shifting back from short-term policy rates to long-term term premiums and fiscal credit pricing. The US dollar index is currently trading around 102.0, near its highest level since the spring of 2025; the euro is trading at around 1.1230 against the dollar, having touched a 17-month low in the previous trading session. Meanwhile, the yield on the 10-year US Treasury note is around 5.32%, and the 30-year yield is around 5.66%. Yields on ultra-long-term French and Japanese government bonds are also remaining near historical highs, indicating that the foreign exchange market is simultaneously bearing the impact of three pricing chains: interest rate differentials, fiscal risk, and cross-border asset allocation.

The French risk premium is changing the pricing logic of the euro.

On October 6th, the yield on French 10-year government bonds was approximately 4.89%, while the yield on German bonds of the same maturity was approximately 3.50%, a spread of about 139 basis points. Earlier in the session, the spread had briefly exceeded 150 basis points, reaching a level rarely seen in over a decade. The yield on French 30-year bonds was approximately 5.39%, having reached a high of 5.57% since the end of September. This indicates that the market's demand for compensation is no longer solely based on the European Central Bank's policy rate, but has clearly incorporated premiums related to fiscal sustainability, future bond issuance, and political execution capacity. French public debt currently amounts to approximately 119% of GDP, with planned bond issuance reaching approximately €340 billion by 2027. Meanwhile, Eurozone inflation reached 3.8% in September, leaving the European Central Bank facing both inflationary constraints and rising member state financing costs. Consequently, the widening spread in French bond yields cannot be simply equated with a shift towards easing by the European Central Bank, as monetary policy must first address price stability. For the euro, the fiscal risk premium has become an important variable independent of traditional policy spreads.

The yield on 30-year Japanese government bonds has risen above 4%, and the market is truly reassessing term risk.

The yield on 30-year Japanese government bonds was around 4.24% on October 6th, having reached a high of 4.279% intraday on October 5th, placing it in historically high territory. Long-term interest rates are significantly higher than the pricing center established over the past few years, reflecting the market's demand for a higher term premium to compensate for duration risks arising from fiscal supply, inflation uncertainty, and monetary policy normalization. Japanese Prime Minister Sanae Takaichi stated on October 5th that she would "control government bond issuance" and emphasized that the government would maintain fiscal sustainability while responding quickly to sharp market fluctuations. It is noteworthy that the policy statement did not immediately eliminate the risk premium on ultra-long-term government bonds. This indicates that market focus has shifted from the policy commitments themselves to future net bond supply, the path of fiscal spending, and long-term inflation compensation. The commonality between France and Japan is not that their fundamentals are entirely the same, but rather that the long-term market is beginning to demand higher compensation for fiscal and term risks.

There's an even more important balance sheet logic behind the dollar's rebound.

The recent strengthening of the US dollar cannot be attributed solely to US Treasury yields. Latest international investment data is more noteworthy: as of the second quarter of 2026, overseas investors held approximately $69.39 trillion in liabilities corresponding to their dollar-denominated assets, while the US net international investment position expanded to -$22.42 trillion. The second quarter alone saw an increase of approximately $4.87 trillion in related liabilities, of which approximately $3.95 trillion came from asset price changes. In other words, the sensitivity of global investment portfolios to dollar-denominated asset prices has significantly increased. Artificial intelligence-related capital expenditures and large-scale technology assets have absorbed substantial cross-border funds in recent years; more importantly, dollar hedging has not grown in tandem. The latest custodial data shows that the foreign exchange hedging ratio for US bonds has roughly halved compared to 2025. This means that overseas investors, while holding dollar-denominated assets, have taken on more unhedging currency exposure. This structure has a two-way characteristic. When capital continues to flow in, asset demand and unhedging dollar exposure can create a self-reinforcing cycle; once the profitability, valuation, or capital expenditure expectations of large-scale technology assets undergo significant repricing, overseas funds may adjust their foreign exchange exposure simultaneously when adjusting their asset positions.

Frequently Asked Questions

Question 1: Why does the French debt crisis directly affect the Euro? Answer: France is one of the major issuers of government bonds in the Eurozone. When the yield spread between French and German bonds widens significantly, it means the market is increasing its pricing of fiscal risk within the Eurozone. Bank balance sheets, financing costs, and monetary policy transmission will all be affected. Therefore, the foreign exchange market will reassess the risk premium required for holding Euro assets. Question 2: Does a rise in the yield on 30-year Japanese government bonds equate to a necessary strengthening of the yen? Answer: It's not a simple equation. Yield changes simultaneously include policy rates, inflation compensation, fiscal supply, and term premiums. The transmission direction of these factors to the exchange rate is not entirely consistent. Therefore, the focus should be on the yield curve structure and cross-border capital flows, rather than a single yield level. Question 3: Why is the concentration of dollar assets worth noting? Answer: Overseas investors hold a large amount of dollar assets, while some foreign exchange hedging ratios are declining. When asset prices and exchange rate exposure are concentrated simultaneously, any rebalancing can affect the stock, bond, and foreign exchange markets simultaneously. Therefore, asset concentration itself has become an important macroeconomic liquidity variable.