The French spread widened recently with investors watching domestic politics and fiscal plans as the country is at risk of missing its deficit-reduction target this year.
The yield gap versus Bunds DE10FR10=RR was at 81 bps, after hitting 84 bps last week, its highest level since October 2025.
Germany and Italy bond yields hit recent highs
Germany's 2-year yields <DE2YT=RR>, more sensitive to expectations for policy rates, were up 4.5 basis points to 2.76%, after reaching 2.7985% early in the session, their highest level since July 2024.
Money markets indicated the European Central Bank deposit rate at 2.68% in December EURESTECBM4X5=ICAP, from the current 2.25%. They also fully priced a rate hike in September.
Germany's 10-year government bond yield <DE10YT=RR>, the euro area's benchmark, was up 2 bps at 3.09%. It reached 3.20% in mid-May, its highest level since May 2011.
Fed Chair Kevin Warsh said in his testimony before the House Financial Services Committee that the U.S. central bank had no tolerance for persistently elevated inflation.
The U.S. central bank may need to raise interest rates "in the near term" if coming data show inflation continuing well above the 2% target, Fed Governor Christopher Waller said on Monday.
Italy's 10-year government bond yields <IT10YT=RR> rose 5 bps to 3.91%, after reaching 3.9441%, their highest since May 20.
The gap versus Bunds <DE10IT10=RR> was at 79 bps. It was at 63 bps before the beginning of the conflict and hit 103.62 in late March, the highest level since June 2025.
German and euro zone yields rise on inflation fears
Germany's policy-sensitive two-year government bond yield hit its highest since July 2024 on Tuesday as the Iran conflict stoked fears that higher energy prices could boost inflation and interest rates.
Euro zone borrowing costs briefly trimmed their rise after U.S. consumer inflation slowed more than expected in June, fuelling bets on a less hawkish Federal Reserve.
Iran fired ballistic missiles at a U.S. air base in Jordan on Tuesday and the United States attacked Iranian targets for five hours in a battle for control of the Strait of Hormuz that has pushed up oil prices to four-week highs.
TLT•
