Rising inflation and fiscal instability in major European countries are increasing pressure for higher interest rates. France's 10-year government bond yield has surged to its highest level in 24 years, while the UK's consumer price inflation has reached an 11-month high.
On October 22, the International Financial Center reported that France's 10-year bond yield hit 5.01%, surpassing 5% for the first time. This marks an 8 basis point increase from the previous trading day, reaching the highest level since 2002 during intraday trading.
The yield gap between French bonds and Germany's, a key safe asset in Europe, has also widened. The difference in 10-year bond yields between France and Germany has expanded to 159.4 basis points, the first time it has exceeded 150 basis points since 2012.
Concerns over fiscal health and political instability are contributing to the rise in French bond yields. As the government faces backlash over its 2027 budget proposal, which includes spending cuts, some political leaders are calling for the budget's withdrawal, increasing uncertainty in the political landscape.
There are warnings that the decline in French bond prices could lead to shocks surpassing those seen during the Eurozone debt crisis. However, analysts suggest that the European Central Bank's (ECB) crisis response tools are stronger than in the past, limiting the potential for a widespread crisis across the Eurozone.
In the UK, inflation is also accelerating. The consumer price index (CPI) for September rose by 3.5% compared to the same month last year, marking the highest increase in 11 months. Rising gasoline prices and costs in the services sector are cited as primary contributors.
As a result, financial markets anticipate that the Bank of England (BOE) will raise interest rates at its monetary policy meeting in November for the first time in nearly three years. The ongoing inflationary pressures are prompting a renewed need for monetary tightening.
The trend of rising interest rates in major European countries is also reflected in the global bond market. The yield on the U.S. 10-year Treasury rose by 1 basis point to 5.12%, while German bond yields increased by 2 basis points to 3.42%. Tensions in the Middle East and concerns over rising international oil prices are exerting pressure across the bond market.
* This article has been translated by AI.
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