Euro zone yields head for seventh 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 to gain 8 basis points. French-German spreads were headed for a fourth straight weekly increase, while money markets priced in about 100 basis points of European Central Bank rate hikes by late 2027.
1. Yields rise across Europe
Euro zone government bond yields were on track for a seventh consecutive weekly rise as higher energy prices and increasingly hawkish central bank signals lifted rate expectations. Germany’s 10-year Bund yield was at 3.60%, after reaching 3.6114% on Thursday, its highest level since June 2009, and was set for an 8-basis-point weekly increase.
2. France lags Italy
The French-German yield spread was on track for a fourth straight weekly rise, widening 4 basis points after reaching 114.06 basis points, its highest level since June 2012; it stood at 108 basis points on Friday. Italy’s spread was set for a 1-basis-point weekly tightening. Schroders’ Ugo Montrucchio said Italy’s fiscal trend and credibility had improved, while France’s deficit and debt trajectories were deteriorating.
3. Rate expectations
Money markets priced the ECB deposit rate at 2.86% by December, implying one quarter-point rate hike and slightly less than a 50% chance of a second. They saw the policy rate at 3.46% by late 2027, compared with 2.50% currently. Some economists said markets had gone too far in pricing an ECB response to inflation pressures, arguing an energy shock could dampen growth and consumer prices.
