Euro zone yields head for seventh straight weekly rise; French bonds lag Italy
TLT•Euro zone government bond yields were on track for a seventh consecutive weekly rise, with German 10-year yields set for an almost 11-basis-point weekly increase. Markets priced in about 100 basis points of European Central Bank rate hikes by late 2027.
1. Yields and spreads rise
Euro zone government bond yields were on track for their seventh consecutive weekly rise on Friday, as higher energy prices and hawkish central-bank signals lifted rate expectations. Germany’s 10-year yield was up 1.7 basis points at 3.6249%, near its highest level since June 2009, and set for an almost 11-basis-point weekly rise. French bonds remained under pressure while Italian bonds staged a modest recovery.
2. France faces spread pressure
The French-German yield gap was set for a fourth consecutive weekly rise, widening by 4 basis points after reaching 114.06 basis points, its highest level since June 2012; it stood at 109 basis points on Friday. France’s emergency energy relief spending has contributed to a deterioration in public finances and put its deficit-reduction target out of reach. Italy’s 10-year spread was little changed over the week and last stood at 90.75 basis points.
3. Rate expectations climb
Money markets priced the ECB deposit rate at 2.84% by December, implying one quarter-point hike and a chance of a second, and at 3.44% by late 2027, compared with 2.50% currently. Some economists said markets had priced in too strong an ECB response to inflation, arguing the energy shock could weigh on growth and consumer prices.
