Germany’s 10-year Bund yield slipped to 3.412%, its lowest level since September 8, marking a fifth consecutive session of declines as investors moved into the relative safety of German government bonds. Demand has been buoyed by renewed concerns over sovereign risk in the Eurozone, particularly in the wake of last week’s sharp bond-market sell-off.
France remains a central source of uncertainty, with investors questioning the government’s capacity to narrow its budget deficit and secure parliamentary approval for its fiscal program ahead of next year’s election. Political risks have also broadened to Spain, after Prime Minister Sánchez called a snap election following Congress’s rejection of proposed housing measures.
At the same time, Eurozone inflation has accelerated to 3.8%—the highest since September 2023 and well above the ECB’s 2% target—driven largely by rising fuel costs. Money markets now price in one 25-basis-point rate increase by December, with a smaller probability of an additional hike, and expect the ECB deposit rate to be around 3.4% by late 2027.
