The yield on the French 10-Year OAT was above 3.46% in January, the highest since reaching a 12-year high of 3.6% in October 2023, indicating higher risk premiums for French debt and expectations that central banks will keep interest rates relatively high in the near future. Rising natural gas prices for major Eurozone economies led to concerns that high energy service costs may rekindle inflationary dynamics that impact core sectors of the consumer basket, limiting the room for the ECB to extend its cutting momentum. In turn, the French government’s reluctance to signal lower deficit spending amid growth risks and political uncertainty added to the discount on long-dated OATs to their German counterparts, lifting the spread to its widest in at least 10 years. Additionally, bonds were also pressured by the outlook of a hawkish Fed following strong labor data in the US.
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