Bond Yields on the Rise: Navigating Fiscal Waters

German 10-year bond yields saw their first weekly rise in a month amid broader market movements and geopolitical developments. Rising oil prices from a U.S.-Iran deal affected traders' outlook on ECB's interest rate hikes. Eurozone bonds are largely following Germany's trend, while concerns over France's fiscal health emerge.

German 10-year bond yields are experiencing their first weekly increase in a month, closing Friday up 3 basis points at 2.93%. Traders adjusted their positions following an initial decline in yields driven by the recent U.S.-Iran deal. Rising Japanese yields have also contributed to this upward trend.

The reopening of the Strait of Hormuz via the U.S.-Iran deal sent oil prices near $70 per barrel, prompting traders to reassess bets on the European Central Bank's rate hikes. Despite a previous rate increase in June, inflation concerns persist, making another hike this year likely.

Shorter-dated German rates have also risen, indicating a curve steepening dynamic. Concerns over France's fiscal position have contributed to the widening gap between French and German bonds, now at its highest since 2025, as the market anticipates important budget decisions.