European sovereign bonds spent the week under fiscal stress, with France at the epicenter.
Multiple research notes highlighted the France-Germany 10Y spread widening to roughly 150bp — a decade high — after Paris unveiled €43bn in spending cuts and tax hikes that markets judged insufficient. Analysts flagged the independent fiscal watchdog's warning that 2027 budget assumptions look optimistic, with the 2027 presidential race adding political risk. One strand of research argued French yields now carry a fiscal-risk premium exceeding Italy's and Greece's, and pointed to heavy selling by Japanese investors.
Contagion was a recurring theme: Italian and Greek spreads over Bunds widened alongside France, with some researchers noting Italy-Germany at 125bp has historical room toward 250bp in stress. Bunds themselves benefited from a flight to safety, though most published views see yields staying elevated as the ECB remains focused on sticky inflation — two more hikes were flagged as plausible into early 2027, with cuts not expected until late 2027.
Romanian bonds were flagged as vulnerable to a potential S&P downgrade.