Euro zone bond yields diverge as investors favour safe havens
TLT•Euro zone bond yields diverged as investors favoured German debt over more indebted countries amid inflation and fiscal worries. Germany’s 10-year yield fell 2.3 basis points to 3.4322%, while Italy’s rose 1.1 basis points to 4.6335% and France’s rose 1.8 basis points to 4.8832%.
1. Yields diverge
German 10-year bond yields fell around 2.3 basis points to 3.4322%, while Dutch yields also dipped. Italy’s 10-year yield rose 1.1 basis points to 4.6335%, and France’s was up around 1.8 basis points at 4.8832%.
2. French debt pressure
French bonds have faced pressure from high debt levels and political risks ahead of the 2027 presidential election, alongside concerns about energy prices, inflation and higher interest rates. France’s 10-year yield neared 5% last week, and its premium over German yields reached more than 158 basis points on Friday, the highest since late 2011; it was last around 145 basis points.
3. Rate expectations
Shorter-dated yields broadly declined. Money markets have pared back expectations and no longer fully price in another European Central Bank rate hike this year, with a 22% chance priced for an increase at its October meeting. Spain’s 10-year yield was broadly stable at around 4.0799% after Prime Minister Pedro Sanchez called a snap election for November 29.
