France 10-Year OAT Yield Rebounds as Middle East Tensions Stoke Inflation Fears

France’s 10-year OAT yield rose to 3.25%, rebounding from Friday’s eight-month low of 3.217%, as escalating tensions in the Middle East unsettled global markets and prompted investors to scale back expectations for interest rate cuts by major central banks amid renewed inflation concerns. Over the weekend, the US and Israel launched strikes on Iran, resulting in the reported death of Iran’s Supreme Leader and the effective closure of the Strait of Hormuz. Iran retaliated with missile and drone attacks across the region, further heightening geopolitical uncertainty. A sharp surge in oil and gas prices has intensified fears of renewed inflationary pressures across Europe, where gas inventories remain unusually low and significant replenishment will be required ahead of next winter. Investors are also monitoring key data releases this week, including flash Eurozone CPI figures for February.

France’s 10-year OAT yield held at 3.25%, its lowest level since July 2025, as investors assessed recent inflation figures and their implications for ECB policy. OATs have outperformed in recent months, bolstered by the approval of France’s 2026 budget earlier this year. France’s EU-harmonized index accelerated to 1.1% in February from 0.4% in January, above the 0.7% forecast, while Spain’s HICP rose 2.5%, exceeding both January’s 2.4% and market expectations of 2.3%. Meanwhile, Germany’s rate slowed to 2.0% in February, coming in just below the 2.1%. Money markets currently assign only a 30% chance of an ECB rate cut by December. Speaking to the European Parliament on Thursday, ECB President Christine Lagarde said headline inflation is expected to converge toward the 2% target over the medium term, with food inflation projected slightly above 2% later this year. She added that the ECB will monitor currency movements but does not plan direct intervention in foreign exchange markets.

France’s 10-year OAT yield held just above 3.25%, after sliding to its lowest level since July 2025, as investors awaited Friday’s inflation report for clues on how euro strength might affect price pressures and the European Central Bank’s policy path. OATs have outperformed recently, supported by the approval of France’s 2026 budget earlier this year. Addressing a European Parliament committee, ECB President Christine Lagarde said headline inflation is expected to converge toward the 2% target over the medium term as wage growth eases, with food inflation, crucial to consumer perceptions, projected just above 2% later this year. She also reiterated that the ECB will track foreign exchange movements but will not intervene directly in currency markets. Meanwhile, investors also weighed US President Donald Trump’s new 10% global tariffs and a third round of US-Iran nuclear talks in Geneva, amid rising tensions in the Middle East.