French bond yields resume upward march following brief relief rally

The global government bond sell-off intensified on Wednesday, spurring a surge in U.S. 30-year Treasury yields to a 24-year high of 5.7041%, reported Investing.com. This rally prompted market participants to brace for substantial sovereign debt supply, ongoing inflation risks, and the forthcoming Federal Reserve's September meeting minutes.

The 10-year U.S. Treasury yield also rose to 5.334%. The renewed bond pressure stems from fixed-income desks preparing for another week of heavy U.S. debt sales, with Tuesday's $39 billion auction of 3-year notes proceeding smoothly compared to last month's challenging 5-year sale. Investors are now focusing on upcoming 10-year and 30-year debt auctions slated for later in the day and Thursday.

The Federal Reserve's minutes from the September meeting, revealing their decision to raise rates for the first time in three years, will offer insights into the central bank's monetary policy trajectory. Meanwhile, Eurozone government bond yields inched higher as a brief respite in French sovereign paper gave way to renewed selling, leading to widening yield spreads between France and Germany.

French 10-year OAT yields climbed to 4.819%, reversing its earlier trajectory after a short-term pause on Tuesday. Short-dated French paper also experienced upward pressure, with the two-year yield reaching 3.576%. However, core benchmarks remained relatively stable. Germany's 10-year government bond yield maintained a steady 3.50%, while the two-year yield remained unchanged at 3.088%, reflecting persistent demand for safe-haven assets.

French borrowing costs have surged in recent sessions due to concerns over the nation's deteriorating public finances and political uncertainty leading up to the presidential election. Despite a brief respite on Tuesday, fueled by Marine Le Pen's announcement of a budget proposal to reduce France's public deficit to 3% of GDP by 2030 through €140 billion in net spending cuts, traders remain skeptical about the feasibility of long-term fiscal consolidation plans.

With France's budget deficit expected to reach 5.4% of GDP in 2026—well above the EU's 3% ceiling—investors continue to demand a significant risk premium to hold French debt compared to Germany's risk-free benchmark.