Euro zone bond yields register two-paced gains, with France and oil in focus
TLT•Euro zone bond yields rose on Wednesday, with 10-year yields up 16.6 basis points in France and 15.8 in Italy, versus 3.1 in Germany. Brent crude rose about 1.3% to $101.84 a barrel.
1. Yields diverge across countries
Euro zone bond yields rose, with French and Italian yields climbing more sharply than German yields as French fiscal worries persisted and oil prices returned to focus. Germany's 10-year yield rose 3.1 basis points to 3.5123%, while Italy's gained 15.8 basis points to 4.6936% and France's rose 16.6 basis points to 4.9132%.
2. French bonds remain under pressure
The spread between German and French 10-year yields widened to about 139 basis points on Wednesday, after exceeding 158 basis points on Friday, its highest since late 2011. Commerzbank strategist Erik Liem said he remained cautious on French bonds versus German ones, adding that “the fundamental backdrop has hardly improved.”
3. Oil and rate expectations
Brent crude rose about 1.3% to $101.84 a barrel on Middle East supply risks and a storm heading for U.S. oil-producing regions. Money markets were fully pricing in one European Central Bank rate increase by its March meeting, with a very high chance of a second, down from futures previously implying at least three increases.
