Euro zone bond yields rise as French fiscal worries weigh
German 10-year yields rose, while Italy's climbed 15.8 bps to 4.6936% and France's gained 16.6 bps to 4.9132%. Brent crude rose about 1.3% to $101.84 a barrel as oil supply risks stayed in focus.
(Updates pricing after European morning, adds quotes) By Sophie Kiderlin LONDON, Oct 7 (Reuters) — Yields on euro zone bonds rose on Wednesday, with those of more indebted countries spiking more sharply than those of safe havens such as Germany as French fiscal worries dragged on and oil prices came back into focus. Kenneth Broux, head of corporate research FX and rates at Societe Generale, said the difference in yield moves indicated a preference for low-deficit, low-risk countries. 5123%. 9132%.
Both more than reversed Tuesday's declines. Broux said the moves suggested that Tuesday's price action was a reflection of investors reducing short positions. "So we are not necessarily past the worst. I think that's the message that the market is really telling you," he said.
Bond markets have been particularly volatile recently and there has been sharp divergence between safe havens such as German bonds and more indebted countries such as Italy and France. Energy prices, inflation and interest rate concerns have put pressure on bonds globally, with high debt adding to this in some cases. French Fiscal And Political Worries In Focus Worries about France's difficult fiscal situation ahead of the 2027 presidential election are keeping investors on edge.
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, was above 158 on Friday, its highest since late 2011. The gap has narrowed since then but it widened again on Wednesday to about 139 bps. Commerzbank rates strategist Erik Liem said he remained cautious on French bonds vs German ones, noting that "the fundamental backdrop has hardly improved". 84 a barrel on Middle East supply risks and a storm heading for oil-producing regions in the United States.
The recent bond market moves have also prompted traders to lower expectations for interest rate hikes from the European Central Bank. Futures had implied at least three more rate increases by the bank's March meeting, whereas money markets are now fully pricing in one increase by then with a very high chance of a second. Shorter-dated bond yields, which are typically more sensitive to interest rate expectations, also diverged across the euro zone on Wednesday. 0645% while Italian and French 2-year yields rose sharply.
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