Treasury Yields Turn Slightly Higher, French Bonds Outperform — Update

By Emese Bartha

U.S. Treasury yields turned higher in European trade on Monday, tracking rises in most eurozone peers, while French government bonds outperformed after Moody's Ratings left its credit rating on France unchanged.

Investors' focus this week will be on interest-rate decisions by the Federal Reserve and the European Central Bank on Wednesday and Thursday, respectively. Money markets price in a 90% probability of unchanged interest rates by both central banks this week, although they also expect hikes in coming months, according to LSEG data.

The two-year Treasury yield rose by 1.7 basis points to 4.699%, while the 10-year Treasury yield edged 0.5 basis points higher to 4.987%, Tradeweb data showed. The 10-year Treasury yield hit a 24-year high of 5.365% on Oct. 7.

The 10-year German Bund yield rose 3.2 basis points to 3.377%, while the 10-year French OAT yield declined 6.7 basis points to 4.963%.

On Friday, Moody's Ratings kept France's credit rating unchanged at Aa3, assuming France successfully adopts a deficit-reducing budget for 2027, while retaining a negative outlook. Many market participants had anticipated that Moody's could opt to downgrade France.

"There remain a lot of moving parts, with a risk of a downgrade further down the line, but the ratings affirmation is leading to some relief for OATs this morning," ING strategists said in a note.

Still, France remains "a major area of concern" for bond markets, said Michael Nizard, global head of asset allocation research at Edmond de Rothschild Asset Management, in a note.

In recent days, investors' concern over France's fiscal challenges and the risk that high oil prices could dent economic growth have prompted a search for safe havens, benefiting U.S. Treasurys and pushing their yields lower.

Attention now is likely to switch to the Fed's decision on Wednesday.

BondBloxx Investment Management will focus on whether the Fed leaves the door open to additional interest-rate increases. Markets currently view October as a pause following September's rate hike, not necessarily the end of the tightening cycle, said senior investment strategist JoAnne Bianco.

"Historically, central banks are reluctant to respond directly to an energy price shock because higher interest rates cannot produce more oil," she said. "The key question is whether higher energy prices stay confined to headline inflation or begin influencing broader inflation dynamics."

The outlook for the Fed's rate path is more uncertain "and will depend on the ongoing conflict in the Middle East, the strength of the U.S. economy and developments in financial conditions," said Elisabet Kopelman, U.S. economist and Fed watcher at SEB.

For now, SEB remains of the view that the Fed will raise rates once more in December, followed by renewed cuts by year-end 2027 and in the first half of 2028.

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

(END) Dow Jones Newswires

October 26, 2026 05:58 ET (09:58 GMT)