Euro zone yields rise, France and Italy spreads hit fresh multi-year highs

Euro zone ​government bond yields were mixed on ‌Thursday after ​posting their biggest quarterly rise since 2022, as a deepening energy shock continued to underpin bets on at least three European Central ‌Bank rate hikes by late 2027.

Meanwhile France’s bond yields reached a fresh 18-year high after posting their biggest quarterly jump in nearly four decades. Expectations of further ECB rate hikes pushed borrowing costs higher, raising concerns ‌about debt affordability in the euro area's most indebted countries, notably France and Italy, while political ‌uncertainty ahead of the 2027 elections added to worries over their fiscal trajectories

Germany’s 10-year government bond yields, the euro area benchmark, Bund yields were up one basis point after reaching 3.6526% on Monday, their highest level since June ⁠2009. They recorded ​on Wednesday a ⁠71-bp quarterly rise. Oil prices fell on Thursday as recovering crude exports from the Gulf and a surprise rise in ⁠US inventories eased supply concerns.

Germany's 2-year government bond yield, more sensitive to policy rate expectations, was up 1.5 bps ​at 3.21%, after hitting 3.3276% on Monday, its highest level since September 2023. It posted ⁠a 66-bp quarterly rise, the biggest since last quarter 2022, when it climbed by 95 bps. Money markets priced the ⁠European ​Central Bank’s deposit rate at 2.81% by December, implying one quarter-point rate hike and a 24% chance of a second move. They also saw the policy rate at 3.42% by late ⁠2027, compared with 2.50% currently.

The gap between French and German government bond yields – a market gauge of ⁠the risk premium investors ⁠demand to hold French debt - was at 127.51 bps, after reaching 128.80 bps, its highest level since June 2012. The Italian spread versus safe-haven Bunds rose ‌to 104.15, the ‌widest since June 2025.

(reporting by Stefano Rebaudo; ​editing by Alexandra Hudson)