06.10.202609:35:19UTC+00French Bond Selloff Eases as Yield Spread Narrows

France’s 10-year OAT yield fell to 4.75%, pulling back from the more than two-decade high above 5% reached late last week. The spread over the German 10-year Bund also narrowed as investors reassessed whether the recent surge in France’s risk premium had been excessively sharp and rapid. French borrowing costs have climbed steeply in recent weeks, with the yield differential versus Germany widening to its greatest level since the 2011 Eurozone debt crisis amid mounting concerns over France’s fiscal outlook ahead of next year’s presidential election. France is due to formally submit its 2027 budget today, while far-right presidential candidate Marine Le Pen is expected to present plans to cut government spending by €25 billion per year. At the same time, bond-market volatility has prompted investors to dial back expectations for additional ECB rate hikes. Markets now assign an 80% probability to one more increase by year-end, while ECB Chief Economist Philip Lane noted that higher borrowing costs could weigh on demand and potentially lessen the need for further tightening.