Treasury Yields Rise, Eurozone Bond Yields Fall, Focus Stays on France — Update

By Emese Bartha

U.S. Treasury yields rose in European morning trade, having slid sharply on Thursday as investors sought safety from the turmoil in French government bonds.

Eurozone government bond yields fell after weaker-than-expected flash estimate purchasing managers data for October in France, Germany and the eurozone.

The data is a key input ahead of the European Central Bank's interest-rate decision on Oct. 29, when it is widely expected to keep rates unchanged.

The 10-year Treasury yield rose 3.3 basis points to 4.985% on Friday, according to Tradeweb. The benchmark yield dropped below 5% for the first time in a month on Thursday, declining 19.3 basis points in its largest one-day fall since March 2023.

Investors' concern over France's fiscal challenges and the risk that high oil prices could dent economic growth have prompted a search for safe-haven investments, benefiting U.S. Treasurys.

"The market has real concerns about the French fiscal situation," said Maria Llerena, director of financial research at Domini Impact Investments.

Focus remains on France, where budget concerns and social unrest have sent the country's bond yields soaring.

The 10-year French OAT yield fell 3.5 basis points to 5.040%, having hit a 24-year high 5.142% on Thursday, while the 10-year German Bund yield declined 1 basis point to 3.330%. The spread between the two stood at 170 basis points, having jumped to 177 basis points on Thursday, its highest since 2011.

The flash estimate French composite PMI came in at 48.4 for October, signaling a contraction in business activity, from 51.1 in September. Analysts in The Wall Street Journal's poll expected a print of 50.8.

"The strongest political signal came from expectations: confidence turned negative for the first time in nearly two years, reaching its lowest level since April 2020," Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said in a note. "Respondents explicitly cited the forthcoming election and concerns about public finances."

Protests, a government trying to pass a budget and presidential elections in the spring of 2027 "complicate things further," Domini's Llerena said.

Moody's Ratings will review France on Friday. The ratings firm has an Aa3 rating with negative outlook on France, "and there is a significant likelihood of a downgrade," said Jens Naervig Pedersen, director in fixed income and forex research at Danske Bank, in a note.

A downgrade, however, is fully priced in and it should not have a significant impact, he said, shifting the focus onto the outlook for the rating.

"If Moody's places France on a stable outlook, then the focus on the rating should diminish," he said.

Composite PMI data--which measure activity in both services and manufacturing--for Germany and the eurozone were both weaker than expected at 52.8 and 51.9, respectively, albeit still in expansionary territory.

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

(END) Dow Jones Newswires

October 23, 2026 05:26 ET (09:26 GMT)