TLT•TLT•Germany’s 10-year yield fell about 1 basis point to 3.48%, while France’s rose nearly 4 basis points to 4.90%, widening the yield gap to 142 basis points. Investors weighed concerns about France’s deficit and higher energy prices.
The gap between French and German borrowing costs widened on Monday as investors weighed concerns about France’s deficit ahead of next year’s presidential election. Germany’s 10-year yield, the euro zone benchmark, fell around 1 basis point to 3.48%, while France’s equivalent yield rose nearly 4 basis points to 4.90%, taking the gap to 142 basis points. It reached 158.67 basis points in early October, its highest level since November 2011.
ABN Amro analysts said political uncertainty, concerns about the 2027 budget and doubts over the credibility of fiscal adjustment had prompted investors to demand a higher risk premium on French bonds, while German bonds benefited from flight-to-quality demand. A poll showed far-right leader Marine Le Pen and hard-left rival Jean-Luc Melenchon widening their lead over other candidates. Analysts regard a hard-left victory as the least market-friendly outcome, while Le Pen pledged steeper spending cuts last week.
Oil rose to near two-week highs, with Brent up around 2% to $106.7 a barrel, while European gas prices gained 3.5%. Germany’s two-year yield rose 2 basis points to 3.11%. Money markets priced one more 25-basis-point European Central Bank rate hike this year from the current 2.50%, and two more next year. Investors were also focused on U.S. data later in the week, particularly Wednesday’s consumer inflation report.
