German and French long-dated yields at highest in over 15 years

"Our base case remains that steady progress in underlying inflation will allow the Fed to keep rates unchanged this year," said Mark Haefele, chief investment officer at UBS Global Wealth Management. "Although the risk of a September hike has increased, the latest sequential inflation data remain consistent with further disinflation," he added. Inflation quickened in four key German states in August, preliminary data showed, suggesting Germany's national inflation rate could increase this month. French borrowing costs remained close to their highest levels in about 18 years. France's 10-year bond yield FR10YT=RR rose 2.5 bps to 4.1504%, the highest since November 2008. The 30-year FR30YT=RR was at 4.9151%, after touching 4.9232% last week, its highest since September 2008. The spread over Germany's benchmark Bund yield DE10FR10=RR was 84.30 bps after hitting 88.30 bps last week, its widest since November 2024. Germany's 10-year bond yield DE10YT=RR was up 3 basis points to 3.3025%, the highest since May 2011. U.S. two-year Treasury yields jumped and the yield curve flattened on Friday after Warsh's comments. They were down 2.5 bps in London trade after rising 12 bps on Friday US2YT=RR. Benchmark U.S. 10-year Treasury yields US10YT=RR fell one bp after rising 5 bps on Friday. "Overall, Bunds cannot defy U.S. Treasuries headwinds, but should still outperform as the market is well-prepared for the next European Central Bank rate hike," said Rainer Guntermann, rate strategist at Commerzbank. "Month-end flows should provide temporary relief today," he added. German two-year bond yields DE2YT=RR were up 2 bps at 2.90%, after reaching 2.9096%, the highest since July 2024. The French short-dated yield FR2YT=RR also hit the highest since summer 2024 at 3.1064%. Traders are pricing the ECB's deposit rate at about 2.70% by December EURESTECBM3X4=ICAP, implying an 80% chance of a second rate hike after one widely expected in September, from the current 2.25%. Markets also suggested investors are positioning for rates to move closer to 3% by late 2027, with the deposit rate priced at 2.95% by September 2027. EURESTECBM9X10=ICAP German and French long-dated government bond yields were at their highest levels in over 15 years on Monday as oil prices rose and Federal Reserve Chair Kevin Warsh signalled interest rate hikes may be needed if inflation remains above target. Markets are closely monitoring the bond supply for both countries, as Germany ramps up spending on infrastructure and defence, while France heads into a difficult budget battle with investors looking for evidence that Paris can regain control of its public finances. Investors also fear that geopolitical tensions could fuel further defence spending. Oil prices rose after fresh fighting erupted between the U.S. and Iran. Iran's army said that it had attacked the United Arab Emirates' Al Minhad Air Base after a U.S. attack, but the UAE said in a defence ministry statement that the reports were false.

German and French long-dated yields at highest in over 15 years

French borrowing costs remain near 18-year highs

German and French yields hit their highest levels in years

German and French long-dated yields rise to multi-year highs

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