French bonds find relief as yields ease; Spanish election also in spotlight
TLT•French 10-year yields fell 1 basis point to 4.86% on Monday, narrowing the spread over German bonds to 138 basis points after it topped 158 basis points last week. Spain’s prime minister called a snap election for November 29; Spanish 10-year yields rose nearly 5 basis points to 4.13%.
1. French yields ease
French government bonds found some relief on Monday after last week’s selloff, with the 10-year yield down 1 basis point to 4.86% and its spread over German bonds narrowing to 138 basis points. The French yield had reached 4.99% on Friday, while the spread exceeded 158 basis points, its highest since late 2011. German 10-year yields rose 3 basis points to 3.49% on Monday.
2. Fiscal concerns persist
French bonds have faced pressure from high debt levels and political risks ahead of the 2027 presidential election. Barclays said markets were right to be concerned about France, but that stress levels were far from those of the euro zone crisis of the early 2010s. Markets priced a 20% chance of an European Central Bank rate hike in October and about an 80% chance by December.
3. Spain calls election
Prime Minister Pedro Sanchez called a snap election for November 29 after a fragmented parliament rejected the government’s housing decrees amid widespread protests. Spanish 10-year yields rose nearly 5 basis points to 4.13%. Capital Economics economist Harry Chambers said the election was unlikely to fundamentally alter economic prospects.
