European bond yields kept grinding higher this week, with the long end under particular strain from supply, fiscal worries, and a still-hawkish ECB.
German 10Y Bund yields pushed back above 3.25%, described in research as the highest since the eurozone debt crisis, while 30Y Bunds hit post-2011 highs. Analysts pointed to record issuance, defense and AI-related spending, and weakening long-end demand as pension funds shift allocations. France drew the sharpest concern: the OAT-Bund spread widened past 85bps toward its 2024 peak, with commentary flagging deteriorating fiscal math, political uncertainty after the first presidential debate, and ineligibility for the ECB's Transmission Protection Instrument. Italian BTPs were named alongside France as vulnerable.
On policy, the published consensus leaned hawkish: Isabel Schnabel's remarks that rates need to rise further prompted markets to nearly fully price a September ECB hike, with another move priced by February. One contrarian thread argued yields could fall as the hiking cycle ends sooner than markets expect.
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