Euro zone bond yields diverge as inflation in the bloc jumps
TLT•Euro zone inflation rose to 3.8% in September from 3.2% a month earlier, above expectations of 3.6%. Bond yields diverged, and the spread between French and German 10-year yields rose above 150 basis points to around 152, its widest since late 2011.
1. Inflation accelerates
Euro zone inflation rose to 3.8% in September from 3.2% in August, exceeding expectations of 3.6%. Fuel and natural gas were the main drivers, with food costs contributing to a lesser extent. Core inflation increased to 2.5% from 2.4%.
2. Yields diverge
Bond yields continued to move in different directions on Friday, though less sharply than the previous day. German 2-year yields fell 5.8 basis points to 2.9962%, while French 2-year yields rose 6.7 basis points to 3.7608%; Italian 2-year yields were down less than one basis point at 3.6109%. An analyst described the moves as a “flight to quality.”
3. France under pressure
The French-German 10-year yield spread rose above 150 basis points to around 152, its widest since late 2011. French bonds faced pressure from high debt levels and political risks ahead of the 2027 presidential election. France presented its 2027 budget bill on Thursday, seeking deficit-reducing measures, but it gave markets little relief.
