French OAT Yields Hold Firm Amid Inflation Fears

France's 10-year OAT bond yields have reached their highest level since July 2008, but recent declines have eased some of the pressure. The yields fell below 4.75% after reaching a high point, with investors taking into account comments from ECB President Christine Lagarde and new inflation data.

Lagarde's statement that the current inflation surge has yet to generate significant second-round effects suggests that the European Central Bank may take a measured approach in its response. However, with eurozone inflation above 3% and potentially nearing 4% by year-end, markets are pricing in up to four additional rate hikes over the next year.

The ECB is expected to resume tightening in December when fresh projections are released, with investors anticipating another rate hike as soon as October in the US. The large primary deficit and fragmented parliament in France are complicating efforts to consolidate public finances ahead of the 2027 election, keeping French bonds under pressure from fiscal concerns.