Euro zone bonds find respite as yields fall from multi-year highs
TLT•Euro zone bond yields fell on Tuesday, and the French-German 10-year yield gap narrowed to 128 basis points from a 15-year high of 158 basis points on Friday. Markets priced an 85% chance of another ECB rate hike by year-end.
1. French yield gap narrows
The French-German 10-year yield gap narrowed to 128 basis points as euro zone bond yields fell. France’s 10-year yield dropped 12 basis points to 4.745%, Germany’s fell 4 basis points to 3.452%, and Italy’s declined 13 basis points to 4.525%.
2. France focuses on deficit
France is set to submit its 2027 budget on Tuesday. Marine Le Pen presented plans to reduce the country’s public deficit to 3% by 2030, while Finance Minister Roland Lescure said the bond-market turbulence had not reached the point of considering European Central Bank tools to stabilize borrowing costs.
3. Rate hike bets ease
Markets priced an 85% chance of another ECB rate hike by year-end, and futures implied fewer than two quarter-point increases by March. The article said falling oil prices and concerns that rising bond yields could affect growth and price pressures had contributed to investors scaling back rate-hike expectations.
