The compensation investors demand for holding French government bonds rather than Italian ones has climbed to the highest level since the euro was created.

On Friday, the yield gap between the two countries' benchmark 10-year government bonds reached a record 30 basis points.

Until last year, Italy was still viewed as the riskier of the two, with its borrowing costs exceeding those of France.

Now investors are punishing France due to the country's slower-than-expected pace of budget deficit reduction and the absence of any sign that its debt ratio of 117.6% of GDP will decline.

With France's presidential election scheduled for April next year, which could potentially pit the far right against the far left, investment managers are also demanding higher yields as compensation for political uncertainty ahead of the vote.

Meanwhile, Italian bonds are being rewarded for the country's years of difficult fiscal austerity, reduced government debt levels, and boosted economic growth.

Although Italian bonds have been hit hard in the recent selloff, investors say the decline lacks a reasonable basis.

"In recent weeks, we've seen opportunities in some markets where yield spreads have widened along with France," said Alex Everett, who manages euro government bond funds at Aberdeen Investment Management. "Italy, Spain, and other smaller markets may perform relatively better."

French government bonds have also underperformed those of some other eurozone countries, but the move relative to Italian bonds is particularly striking because Italy has long been regarded as the bellwether for eurozone sovereign risk.

In July 2012, at the height of the eurozone debt crisis, the yield on Italian 10-year government bonds was more than 400 basis points above that of France.

But now the situation has reversed, with France currently at the center of Europe's bond selloff.

The yield spread between France and Germany has widened to levels unseen since the euro debt crisis, exceeding 150 basis points last week.

On Friday, as markets stabilized, that spread briefly narrowed by 5 basis points to 135 basis points.

Irina Kurochkina, a portfolio manager at Aegon Investment Management, said investors are taking advantage of the recent selloff to buy cheaper bonds from countries like Italy and Spain.

However, investors are generally still avoiding France.