French government bond yields rise as markets bet on European Central Bank interest rate hike

The yield on France’s 10-year OAT government bonds is rising towards 4.9% as investors increase their bets on further rate hikes by the European Central Bank. Meanwhile, oil prices have rebounded from more than two-month lows after former US President Trump said Washington does not need to reach an agreement with Iran. French government bonds remain under pressure due to domestic fiscal concerns, with investors closely watching the country’s public finances ahead of next year’s presidential election. Current forward contracts for the European Central Bank’s euro short-term rate (€STR) indicate that the market expects the deposit rate to rise from the current 2.5% to 3.25% by the end of 2027, higher than last week’s pricing of 3%. The contracts also show that rates will reach 2.74% by December 2026. Meanwhile, stronger-than-expected US inflation data released on Tuesday pushed up US Treasury yields and reinforced expectations for further tightening from the Federal Reserve. The market has now fully priced in a December rate hike by the Fed, and is also considering the possibility of a 50 basis point increase.