European bond yields saw a slight easing on Friday morning, following one of the sharpest sell-offs in years that had investors on edge. The yield on France’s 10-year OAT was trading around 4.67%, a small dip from approximately 4.7% earlier in the day. Meanwhile, Germany’s 10-year Bund yield hovered around 3.59%, down from 3.61%. This fluctuation also revealed a widening gap between French and German borrowing costs, surpassing 110 basis points this week, marking its broadest since the eurozone debt crisis in 2012. Investors are increasingly concerned about France’s debt situation and looming election risks, especially after ratings agency Scope downgraded France. They’re weighing the potential fallout of a 2027 presidential run-off that could pit the far-right against the far-left.
These worries have pushed the cost of insuring French debt against default to its highest level in nearly a decade. But the bigger headlines were coming from across the Atlantic. The yield on 30-year US Treasury bonds soared to its highest level since 2004, hitting around 5.5% this week. This surge was exacerbated by a fresh spike in oil prices, raising alarms about persistent inflation and ballooning government debt. The 10-year Treasury yield, which heavily influences US mortgage rates, reached levels not seen since 2007.
Homebuyers in the US are now grappling with these rising borrowing costs, as the average rate for a 30-year mortgage hit 7% this week. This is about a percentage point higher than where it stood before the onset of the Iran war and represents the highest rate since Donald Trump took office in January 2025. It’s pretty wild to think that bonds, traditionally viewed as a safe haven, are faltering just when stocks are losing their footing.
“Bonds and stocks are both taking a hit due to inflation,” noted one economist. “The traditional safe havens are less oil-intensive and labor markets have more slack to absorb creeping inflation.” While assets like inflation-linked bonds and gold are providing some shelter, the sentiment is that abandoning bonds entirely would be a mistake. Economists are interpreting the interest rate spike as largely temporary, reflecting a recalibration of monetary policy in response to soaring energy prices. There’s a pressing need to tighten fiscal policy by over one percentage point of GDP to counteract sustained increases in interest costs. In contrast, countries like Spain, Greece, and Portugal seem to be better positioned to withstand these pressures.
What’s next for the bond market and mortgage rates? Only time will tell as investors continue to navigate this unpredictable landscape…
Kaynak: Orijinal Haber