FX.co ★ French OAT Yields Rise on Middle East Escalation

France’s 10-year OAT yield climbed above 3.7%, nearing its highest level since June 2009, as escalating tensions in the Middle East continued to weigh on European bond markets. President Donald Trump’s address, which failed to lay out a clear path to resolving the conflict, sparked an additional wave of selling. Although Trump indicated that the US operation was close to completion, his pledge to pursue more aggressive measures, including possible strikes on electrical infrastructure, deepened investor anxiety. The absence of any new justification for the war, combined with rising uncertainty, has intensified inflation concerns and prompted a reassessment of the European Central Bank’s future policy stance. Markets now expect three interest rate hikes in 2026, up from two just a day earlier. Before the conflict began, investors had not priced in any tightening at all, and some had even been betting on potential monetary easing.