Bund Rout Pauses After Yields Hit 17-Year High

Germany’s 10-year Bund yield fell below 3.55%, retreating from a 17-year high, as investors weighed demand for safe-haven assets against expectations for further ECB rate hikes through 2027 as the energy shock deepens. French bond yields, meanwhile, surged to an over two-decade high after posting their biggest quarterly increase in nearly four decades, as the minority government unveiled a plan to cut the budget deficit, although the fiscal watchdog warned that its economic assumptions were “optimistic.” Expectations for higher ECB rates are pushing borrowing costs across the euro area, raising concerns over debt affordability in the bloc’s most indebted economies. Political uncertainty ahead of the 2027 elections is adding to concerns over their fiscal outlooks. Money markets now price the ECB’s deposit rate at around 2.8% by December, implying one further 25-basis-point hike and a 24% chance of a second move. Markets also see the policy rate reaching around 3.4% by late 2027.