Euro zone bond yields diverge ahead of inflation data
TLT•Euro zone bond yields diverged on Friday ahead of inflation data, with German 2-year yields down 5.4 basis points to 3.0005% and French 2-year yields little changed at 3.6848%. The spread between German and French 10-year yields was near 146 basis points, its widest since 2012.
1. Yields diverge
German and Dutch bonds drew safe-haven demand as euro zone government bond yields diverged, though less sharply than the previous day. On Thursday, German 2-year yields fell nearly 14 basis points and Dutch 2-year yields dropped around 13 basis points, while French and Italian yields rose.
2. Inflation and ECB outlook
On Friday, money markets were no longer fully pricing in another European Central Bank rate increase after paring back expectations for further hikes. Euro zone inflation data due later in the day was expected to show inflation picking up again in September, fueled by higher energy prices; traders were also watching for signs of second-round inflation effects.
3. French debt pressure
German 10-year yields were down 5.4 basis points at 3.4651%, while French 10-year yields were steady at 4.9299%. France’s 2027 budget bill, presented on Thursday, seeks belt-tightening measures to lower its deficit; French bonds have also faced pressure from high debt levels and political risks ahead of the 2027 presidential election.
