09.10.202607:47:29UTC+00French Bond Yields Ease as ECB Rate Hike Bets Retreat

The yield on France’s 10-year OAT slipped to 4.85%, easing from its highest level in more than two decades. The move came as markets pared back expectations of further European Central Bank tightening, after the recent oil price rally stalled following US President Donald Trump’s statement that Washington would not attack Iran before the November midterm elections.

Money markets now expect the ECB’s deposit rate to rise from the current 2.50% to around 2.72% by December and to 3.20% by late 2027. Prior to the recent widening in bond spreads, investors had been pricing in roughly one additional rate increase in early 2027.

French government bonds remain under pressure amid expectations of higher ECB rates and mounting political uncertainty ahead of the 2027 presidential election, which has intensified concerns about France’s capacity to stabilize its public finances. The yield spread between French OATs and German Bunds narrowed modestly this week to about 135 basis points, down from 159 basis points last Friday, when it reached its widest level since November 2011.