Eurozone government bond yields surged on Thursday after the US 10-year Treasury yield touched its highest level in almost a quarter of a century, with France and Italy hit hardest. The selloff pushed the euro to a 16-month low, split European and US equities, and spread to Japanese bonds and corporate credit markets.
France's 10-year yield jumped as much as 0.1 percentage points to 4.96%, its highest level since mid-2002, as a global bond rout swept across the Atlantic. The move followed US 10-year Treasury yields, which climbed as much as 0.05 percentage points to 5.34%, a level last touched almost a quarter of a century ago, before easing to 5.24%, down 0.05 percentage points on the day.
France and Italy bear the brunt
UK 30-year gilt yields climbed above 6% for the first time since 1998 before easing to 5.93%. Italy's 10-year yield, meanwhile, rose 0.05 percentage points to 4.69%, pushing its spread over German debt to 1 percentage point for the first time since March.
The French sell-off has combined with domestic political risk: the government has put forward a 2027 budget with €43bn of cuts and tax increases amid rising worries over public finances. Higher inflation readings in Germany, France and Italy added to the pressure, even as US data showed a drop in the Federal Reserve's preferred inflation measure.
Euro slides, stocks diverge
The euro dropped as much as 1% to a 16-month low of $1.1214, buffeted by higher oil prices and the bond market turmoil.
European bank shares fell, with BNP Paribas down 3.6% and Deutsche Bank falling 2.6%. The Stoxx Europe 600 dipped 1.3% while the FTSE 100 fell 1.7%. US stocks, however, held up better: the S&P 500 closed 0.2% higher and the Nasdaq 100 gained 0.3%, resilience that Aviva Investors' Harriet Ballard tied to strong earnings in AI-linked sectors.
Pressure spreads to Asia and credit
The strain reached beyond Europe. Japanese 10-year bond yields rose 0.04 percentage points to 3.1%, close to a multi-decade high, which Barclays strategist Mitul Kotecha linked partly to US contagion and uncertainty over Bank of Japan tightening. "It's the fiscal concerns that continue to play in the market," he added.
Corporate credit markets felt the spillover too. The additional interest rate paid by European investment-grade companies over government bond yields ticked up to almost 0.9 percentage points this week, the highest level since April, according to ICE BofA data. US conventional 30-year mortgage rates also jumped 0.25 percentage points — the biggest increase in four years — to 7.28% this week, Freddie Mac data showed.
Source: Markets – FT
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