European sovereign yields look set to grind higher across the board, according to research published this week — and the France-Germany spread, already above 100bp, is being flagged as the key fragmentation risk to watch.
The reasoning from multiple analyst camps converges on a few forces: strong Eurozone PMI surprises, spillover from rising US real yields, and a global bond sell-off dragging Bunds, OATs, and BTPs up together. Recent commentary also highlights ECB Chief Economist Lane's warning of higher, more persistent inflation running through mid-2027, which has pushed rate expectations up. One published call goes further, arguing the ECB should lift the deposit rate from 2.50% to 3.00% at the October meeting if energy markets cooperate.
On the core-periphery split, researchers note the OAT-Bund spread is at levels unseen since the euro crisis, with one view framing 105bp as a "potential issue" for broader sovereign risk.
A contrarian, longer-horizon thread argues joint EU borrowing has durably compressed spreads — but that's a story for beyond 2026, not the tactical window.