Euro zone bond yields jump again as oil prices surge, French spread widens

Federated Hermes

08/10/2026 12:42

Euro zone yields rise sharply again as oil jumps 5%
Worries about French debt levels push up risk premium
French concerns spill over to Italian and other bonds
Updates prices, adds comment
By Harry Robertson
LONDON, Oct 8 (Reuters) - Euro zone government bond yields rose sharply again on Thursday as a surge in oil prices intensified inflation concerns, with investors continuing to sell bonds of heavily indebted countries such as France and Italy.    
Brent crude LCOc1 rose 5% to $105 a barrel, its highest in more than a week, as investors worried about Middle East supply disruptions linked to the US-Israeli war on Iran and the related conflict between Saudi Arabia and the Houthis in Yemen.
Rising energy costs have led traders to price in further central bank rate hikes. Combined with concerns over government debt burdens, that has fuelled a months-long global bond selloff that has pushed yields to multi-decade highs.
France has been hit particularly hard as investors scrutinise its debt load, budget deficit and political outlook ahead of the 2027 presidential election.
France's 10-year bond yield FR10YT=RR rose 9 basis points to 4.961%, not far below the 24-year high of 4.994% touched on Friday.    
The spread between French and German 10-year yields, a gauge of the risk premium investors demand to hold French debt, widened 4 bps to 142 bps DE10FR10=RR. It reached almost 160 bps last week, its highest level since 2012.
"France is quickly becoming the focus of the European bond selloff," said Mitch Reznick, head of cross-border credit at Federated Hermes, "as attention turns to France's high debt, large budget deficits, increased bond supply and political uncertainty ahead of the presidential election (in 2027)."
GERMAN BONDS OUTPERFORM PEERS
Germany's 10-year bond yield DE10YT=RR, the benchmark for the euro zone, rose 5 bps to 3.534%, outperforming its peers. Yields move inversely to prices.
German debt has benefited from its safe-haven status during this week's market turbulence.
German yields fell last week as those of other euro zone countries climbed and, although they have risen this week, the increase has been smaller than in many neighbouring markets.
"In terms of its fiscal dynamics, I think it's justified that Germany plays that role as an anchor in the euro zone and as a safe haven," said Van Luu, global head of solutions strategy, Russell Investments.
US 10-year Treasury yields US10YT=RR, which influence borrowing costs globally, rose 7 bps to 5.349%. They touched 5.365% on Wednesday, their highest level since 2002, before easing after a strong 10-year debt auction.
Shorter-dated yields, which are sensitive to European Central Bank rate expectations, also rose. Germany's 2-year yield DE2YT=RR was up 5 bps at 3.085%.
The 2-year yield fell on Wednesday as the bond market selloff stoked concerns about economic growth, but Thursday's surge in oil prices prompted traders to increase bets on further ECB rate hikes.
Bank of France head Emmanuel Moulin said on Thursday a geopolitical shock that had pushed up inflation was now "transmitting into a financial shock".    
On Wednesday, he said France did not currently need ECB support, with investors watching closely for signs the central bank could respond to the bond market turmoil.

 (Reporting by Harry Robertson. Editing by Elaine Hardcastle and Mark Potter)
 ((harry.robertson@thomsonreuters.com;))