Euro zone bond selloff pauses as yields dip from multiyear highs
TLT•Euro zone bond yields fell on Tuesday after a selloff, with Germany’s 10-year yield down 4 basis points to 3.6%, after reaching a 17-year high of 3.6526% on Monday. Markets priced in almost four more quarter-point ECB hikes, while French 10-year yields rose nearly 65 basis points this month.
1. Yields ease
The euro zone bond selloff paused Tuesday, though yields remained near multiyear highs. Germany’s 10-year yield fell 4 basis points to 3.6%, its first daily decline in six sessions, after hitting 3.6526% on Monday, its highest in 17 years.
2. Rate expectations
Oil and gas prices remained key drivers, with energy-related inflation concerns raising expectations for further ECB rate increases. Money markets priced in almost four more quarter-point hikes beyond the two increases over the summer, and futures implied about a 45% chance of a hike next month. ECB President Christine Lagarde said Monday that a measured response was appropriate and noted rising long-term yields could slow growth.
3. French debt concerns
Investor concerns about debt sustainability also weighed on bonds, particularly in countries with strained fiscal outlooks. French 10-year yields rose nearly 65 basis points in September, their largest monthly rise since December 2022 if sustained, and the France-Germany yield gap widened 5.75 basis points to 117, its widest since 2012.
