Euro Zone Bonds Rally Amid Market Jitters

Germany's 10-year bond yield dipped as market nervousness benefited euro zone bonds. German yields fell to 2.39%, while Italy's and France's yields also decreased slightly. The yield spread between German and French bonds narrowed marginally, as focus shifts to France's upcoming parliamentary elections.

Germany's 10-year yield dipped on Tuesday as the euro zone benchmark bond benefited from the nervous tone across markets, and the now closely-watched spread between German and French bonds held steady. The German 10-year bond yield fell 2.8 basis points to 2.39%, in keeping with the "risk off" tone as stocks dropped and the dollar firmed.

Italy's 10-year yield was lower by 1.5 basis points​ at 3.91%, and the gap between Italian and German bund yields widened 0.9 basis points to 151 bps. France's 10 year yield was down 2.6 bps at 3.12% and the spread between it and the German bund yield was a fraction narrower at 70.5 basis points, having reached around 80 bps earlier in the month.

The spread is in focus ahead of France's parliamentary elections on June 30 and July 7 in which the far-right National Rally (RN) party looks set to win the most votes and could form France's next government, with a left-wing coalition called New Popular Front forecast to come in second.