France’s 10-year OAT yield eases to 4.85%, slightly below a more than two-decade high
Updated
Summary
France’s 10-year OAT yield eased to 4.85%, retreating slightly from a more than two-decade high, as markets scaled back expectations for European Central Bank tightening.
Why it matters
The French-German 10-year bond spread narrowed to about 135 basis points from 159 basis points last Friday, which was its widest level since November 2011. Germany’s 10-year Bund yield also eased, to 3.45%, moving further away from a 17-year high touched in late September.
Markets priced the ECB deposit rate at 2.72% by December and 3.20% by late 2027, up from 2.50% currently, after scaling back expectations for tightening. Before the recent spread widening, investors had anticipated roughly one additional rate hike in early 2027.
French bonds remained under pressure from expectations of higher ECB rates and political uncertainty ahead of the 2027 presidential election, which had heightened concerns about France’s ability to rein in public finances. More broadly, borrowing costs and risk premiums on French and Italian government debt declined after rising sharply last week, as investors reassessed fiscal and political risks across the euro area. Separately, Brent crude retreated from recent highs as concerns about Middle Eastern oil supplies eased after Donald Trump said Washington would not attack Iran before the November midterm elections, citing productive talks aimed at ending the conflict.