France’s 10-year OAT yield has climbed back above 3.5%, its highest level since January 21, as investors increasingly price in a more hawkish stance from the European Central Bank in response to renewed inflationary pressures. Escalating geopolitical tensions tied to the conflict involving Iran have driven energy prices higher, intensifying concerns about inflation and prompting markets to reassess the monetary policy outlook.
While oil prices have retreated from earlier peaks above $100 per barrel, that surge has already had a pronounced effect on interest rate expectations. Money markets are now anticipating an ECB rate hike later this year—a stark reversal from the previously modest probability of a rate cut before the conflict erupted. On Tuesday, Christine Lagarde reiterated that the central bank stands ready to take all necessary measures to contain inflation, even as elevated energy prices continue to pose risks.
