Euro zone bond yields diverge; French fiscal worries, oil prices in focus

By Sophie Kiderlin LONDON, Oct 7 (Reuters) — Yields on euro zone bonds diverged again Wednesday, with those on more indebted countries spiking more sharply than those on safe havens, as French fiscal worries dragged on and oil prices came back into focus. 4969%. 8437% following a more than 11-bp decline in the previous session. Bonds have seen high levels of volatility recently, and at times there has been sharp divergence between safe havens like German bonds and more indebted countries like Italy and France.

Energy prices, inflation and interest rate concerns have put pressure on bonds globally, with high debt levels adding to this in some cases. That includes France, with worries about the country's difficult fiscal situation ahead of the 2027 presidential election keeping investors on edge. That sent the spread between German and French 10-year bond yields, a measure of the premium investors require to lend to France as opposed to the benchmark, above 158, its highest since late 2011, on Friday. The gap has since narrowed again, but was wider on the day at around 134 bps.

Commerzbank rates strategist Erik Liem said he remained cautious on French bonds vs German ones, noting that "the fundamental backdrop has hardly improved". Brent crude futures were back above the $100 mark as traders weighed supply constraints from a storm heading for US oil-producing regions and attacks by Yemen's Iran-backed Houthis on Saudi Arabia against increased supplies of Middle East crude. The recent bond market moves have also seen traders cut back their expectations for interest rate hikes from the European Central Bank.

Pricing for policy increases ticked higher on Wednesday, with roughly two hikes priced in by the March meeting, but was still below previous expectations. 0751%. 34982%. com)