French Government Bonds Recover as Yields on Eurozone, U.S. Peers Fall — Update

By Emese Bartha

Eurozone government bonds and U.S. Treasurys took a breather on Tuesday, allowing yields on their hard-hit French peers to ease.

Yields eased after recent sharp rises, with markets paying less attention currently to oil prices as December front-month Brent futures rose above $110 a barrel.

Still, concerns about inflation linger, while nationwide protests and budget problems in France are firmly in focus and a reminder of global debt problems.

"Latest dynamics show signs of global, not just French debt crisis," said Commerzbank rates strategist Christoph Rieger in a note.

The 10-year U.S. Treasury yield fell 1.5 basis points to 5.120%, while the 30-year yield declined 2.2 basis points to 5.451%, according to Tradeweb. They stayed comfortably below recent multidecade highs as markets have significantly scaled back expectations of an interest-rate hike by the Federal Reserve this month.

The 10-year German Bund yield fell 2.3 basis points to 3.435%, while French 10-year OAT yields lost 1.6 basis points to 4.919%.

The 10-year OAT-Bund yield spread remained very high at 144 basis points, having closed at 147 basis points on Monday, the widest closing level since the sovereign debt crisis in 2012, according to LSEG data.

Risk premium for French OATs is in uncharted territory, Citi rates strategist Jamie Searle said in a note.

"As such, there is no obvious anchor level, and sentiment is in the driving seat," he said.

France's National Assembly is scheduled to vote on the revenue section of the 2027 draft budget bill. The country's budgetary process looks even more fraught following the scale of the weekend's social unrest, Searle said.

Spillover risks from France warrant close attention and further volatility in bond markets is possible, the BlackRock Investment Institute said in a note. However, the current situation is "materially different" from the 2011-2012 eurozone debt crisis, its strategists said.

"France's government debt has surged from roughly 89% of gross domestic product in 2011 to around 119% today, while the euro area's aggregate debt ratio is now back at its 2011 level of around 89%," BlackRock Investment Institute said.

"The region is also better equipped to weather financial stress, with stronger banks and more powerful European Central Bank tools, though intervention isn't guaranteed."

Still, BlackRock stays neutral on eurozone government bonds and prefers opportunities elsewhere.

In the U.S., the market's near-term focus is on the Fed's rate decision on Oct. 28. Money markets price a high 83% probability of the Fed keeping the fed funds target rate range unchanged at 3.75%-4.00%, according to LSEG.

Recent Fed communication reinforces Deutsche Bank analysts' baseline forecast for a quarterly pace of rate hikes through March, rather than a more accelerated sequence, they said in a note.

Write to Emese Bartha at emese.bartha@wsj.com

(END) Dow Jones Newswires

October 20, 2026 04:42 ET (08:42 GMT)