Hedge funds unwinding crowded positions helped intensify the sell-off in French government bonds, with leveraged investors rushing to cut exposure as losses mounted and market liquidity deteriorated, according to a report by Bloomberg.

The report cites unnamed people familiar with the matter as saying that Taula Capital Management, Balyasny Asset Management and other hedge funds had built positions designed to capture the spread between French government bond yields and interest-rate swaps. The strategies had generated strong returns before the sharp decline in French bonds forced investors to unwind positions, accelerating the market's move.

Representatives for Taula and Balyasny reportedly declined to comment.

The pressure pushed the spread between French and German 10-year government bond yields to 154 basis points on Friday, its widest level since 2011, when the euro-area sovereign debt crisis was escalating. French bonds had already come under heavy selling pressure on Thursday after the government's budget proposals were criticised as overly optimistic by the country's fiscal watchdog.

The report cites Marion Le Morhedec, chief investment officer for fixed income at Fidelity International, said the growing presence of hedge funds in the French market was adding to the pressure on government bonds.

Hedge fund activity could account for around half of recent moves in the French-German yield spread, according to Le Morhedec, who pointed to Eurex data showing particularly heavy activity in recent sessions.