UK Gilt yields are at their lowest since the 1890s. Now that’s a long time ago. This reflects concerns about UK economic growth and inflation, which will require low short term interest rates from the Bank of England for an extended period. It also reflects the relatively safe-haven status of the Pound Sterling in this age of Euro-fragility. No matter what the French may try to say about the UK debt situation, I’d rather be in Pounds than Euros at the moment.
The UK isn’t going to default in the next 10 years (hey, I have no idea what will happen beyond then) and the short term prospects for the currency are more likely for appreciation than depreciation. The very low yields don’t offer much protection against depreciation for non-UK investors over the next 10 years, but inflation risks are pretty minimal for an extended period due to the liquidity trap the UK also finds itself in.
Meanwhile, across the pond, French unemployment is at a 12 year high. For the meantime, French borrowing costs aren’t being overly hurt by investor concerns about the future of the Euro, but I’m not entirely convinced this possibility is off the table during the course of 2012. The practicalities of what happens to Euro-denominated French bonds are not exactly attractive to risk-averse, certainty-desiring investors.