French Bond Premium Reaches 100 Bps
The spread between French and German government debt widened to 100 basis points on Friday. This is the highest level recorded since July 2012. Market volatility intensified as yields climbed across the Eurozone.
French 10-year OAT yields rose 13 basis points to 4.573%. The premium over German Bunds hit 1.00 percentage point. This marks the widest spread since 2012. Investors demand higher compensation for holding French debt. The move reflects growing concerns over fiscal stability.
Yields Rise Across Eurozone
German 10-year yields increased 4 basis points to 3.52%. This reverses the previous day’s decline. The yield peaked at 3.5723% on Tuesday. This was the highest level since June 2009. Italian 10-year yields rose 9 basis points to 4.43%.
Credit default swaps for France hit 41.5 basis points. This is the highest level since April 2025. Protection costs for France now exceed those of all other developed economies. French two-year yields rose 15 basis points to 3.536%. The country faced the largest weekly yield increase among G7 nations.
Policy Expectations Shift Upward
Money markets price the ECB benchmark rate near 3.00% by year-end. It currently stands at 2.50%. Traders expect three additional rate hikes in the next six months. German two-year yields reached 3.263%. They are on track for a sixth consecutive weekly gain.
Global central banks have tightened monetary policy aggressively. The Federal Reserve and Bank of Japan raised rates. The Bank of England held rates steady but signaled potential hikes. Energy prices remain above $100 per barrel. Brent crude futures fell for a third consecutive day.
Market Sentiment Remains Cautious
Jefferies expects OAT spreads to continue widening. The firm requires materially wider levels before turning constructive. French Prime Minister Sebastien Lecornu is finalizing the 2027 budget. Voter unrest over cost of living adds political pressure. Fiscal outlook improvements remain limited.
Mizuho strategists note risks are skewed toward higher inflation. Central banks focus on easing financial conditions. Uncertainty remains over terminal rate levels. Approximately 18 central bank officials will speak next week. The blackout period has ended. GN auto markets/bonds: debt markets reports indicate ongoing stress in the sector.
