FX.co ★ France 10-Year OAT Yields Ease Slightly

The yield on France's 10-year government bonds (OATs) saw a slight decrease to 3.56%, marking a retreat from the 14-year peak of 3.6% observed on December 22, as the widespread bond selloff took a brief pause. Despite this short-term dip, the yields continue to stay high due to ongoing fiscal uncertainty and a budget stalemate. Lawmakers failed to reach a consensus on the 2026 budget last Friday, leading Prime Minister Lecornu to introduce emergency legislation to extend current spending into January, aiming to avert a government shutdown. The complete budget is anticipated to be approved in early January. Meanwhile, European Central Bank (ECB) policy maker Isabel Schnabel has indicated that an immediate interest rate hike is not on the horizon, though continuing inflationary pressures suggest that monetary tightening will eventually be required. Current market dynamics show about a 40% likelihood of an ECB rate increase by March 2027, aligning with expectations set after the recent ECB meeting. In other developments, the Bank of Japan has hinted at a more aggressive stance, suggesting potential future rate hikes, while US markets continue to anticipate rate cuts extending through 2026.