Euro zone yields set for seventh straight weekly rise, French spread widens
TLT•Euro zone government bond yields were on track for a seventh consecutive weekly rise, while the French-German yield spread was set for a fourth weekly increase. Markets priced in one European Central Bank rate hike by December, with a slightly less than 50% chance of a second.
1. Yields and rate bets
Euro zone government bond yields were on track for a seventh consecutive weekly rise as higher energy prices and more hawkish central-bank signals lifted expectations for policy rates. The German 10-year yield was down 3.5 basis points on Friday after reaching 3.6114% on Thursday, its highest level since June 2009, and remained set for a 5.5-basis-point weekly rise. Money markets priced the ECB deposit rate at 2.86% by December, implying one quarter-point hike and a slightly less than 50% chance of a second.
2. French spread widens
The French-German government bond yield spread was on track for a fourth straight weekly rise, widening by 4 basis points after reaching 114.06 basis points, its highest level since June 2012. It stood at 106.50 on Friday. Italian bonds staged a modest recovery, with the Italian-German spread set for a slight weekly tightening and last at 91.50.
