Eurozone Bond Yields Soar as Energy Shock Fuels Rate Hike Bets

The Eurozone's government bond yields were mixed on Thursday as investors continued to price in higher borrowing costs due to rising energy prices and elevated inflationary pressures.

The French government bond yields climbed to a fresh 18-year high, recording their biggest quarterly increase in nearly four decades. This highlights growing investor concerns over France's fiscal position.

Germany's benchmark 10-year Bund yield was up by 1 basis point on Thursday, reaching its highest level since June 2009. The two-year yield rose 1.5 basis points to 3.21%, touching a high of 3.3276% on Monday and increasing about 66 basis points during the third quarter.

The rise in yields has been driven by expectations that the European Central Bank (ECB) may need to keep monetary policy tighter for longer as energy costs threaten to push inflation higher. Markets are pricing the ECB's deposit rate at around 2.81% by December, implying one 25-basis-point rate increase and assigning a 24% probability to a second move.

The spread between French and German 10-year government bond yields stood at 127.51 basis points, widening to its highest level since June 2012. Italy's 10-year yield spread over German Bunds also widened to 104.15 basis points, its highest level since June 2025.