European bond markets are splitting in two, according to this week's published research: France looks increasingly fragile, while German Bunds and quality euro credit look well bid.
On France, a broad consensus of analysts points to fiscal strain, a budget vote pushed to 3 November, social unrest, thin liquidity, and an expected sovereign downgrade. The France-Germany 10-year spread, researchers argue, is likely to push toward or above 200bp from around 177bp, with OAT yields extending higher after breaching 5%. One strand of analysis also flags forced unwinds of leveraged long positions as an accelerant.
On core bonds, the published consensus sees Bund yields drifting lower — one view maps a move from roughly 3.40% toward 3% over twelve months — as inflation peaks, growth stays weak, and the central bank nears the end of its hiking cycle. A dovish repricing is seen as likely if PMIs disappoint.
Analysts are also constructive on quality eurozone investment grade credit and bank AT1s. On the policy rate, most expect a December hike to 2.75%, though a contrarian view argues market pricing of three more hikes is too aggressive.