France’s OAT Yield Nears 2009 Peak on ECB Hikes

France’s 10-year OAT yield reached 3.75%, approaching its 2009 high, as soaring energy costs and the ECB’s hawkish tone strengthened expectations for multiple 2026 rate hikes. Brent crude surpassed $110 per barrel after Middle East refinery attacks, with reports of possible US moves against Iran’s Kharg Island, a critical oil hub. Markets now price in at least two ECB hikes this year, with a possible third, after the bank held rates but lifted inflation forecasts and trimmed growth projections. Joachim Nagel signaled a potential April hike if inflation worsens, while Francois Villeroy de Galhau stressed the ECB’s resolve to act decisively amid rising geopolitical tensions.

France’s 10-year OAT yield dipped to 3.62% on Friday, but remained close to a 14-year high of 3.71% hit a day earlier. The move comes as the European Central Bank’s warning about surging inflation, exacerbated by soaring energy prices tied to the Iran conflict, solidified expectations of near-term interest rate increases. While the ECB kept rates on hold during its Thursday meeting, it struck a more hawkish tone, upwardly revising its inflation projections and downgrading growth forecasts. Major banks now expect a rate hike as soon as April, with markets fully pricing in an increase by June and seeing a 60% likelihood of a May move. ECB policymaker Joachim Nagel hinted at a possible rate rise next month if inflation pressures intensify, while Francois Villeroy de Galhau emphasized the bank’s commitment to act decisively as needed.

France’s 10-year OAT yield climbed to 3.67%, its highest since November 2011, after the European Central Bank maintained rates but adopted a more hawkish tone. The ECB reiterated its commitment to a 2% medium-term inflation target, cautioning that the Middle East conflict has increased uncertainty, boosting inflation risks while hurting economic growth. The bank revised up its 2026 inflation outlook and lowered growth forecasts, pointing to the war’s impact on commodity prices, household incomes, and confidence. Markets now expect 60 basis points of ECB tightening this year, implying at least two quarter-point rate hikes.