France’s OAT Yields Retreat, but Heads for Sharp Monthly Rise

France’s 10-year OAT yield slipped toward 3.7%, falling back from multi-year highs, as investors reassessed growth risks linked to the energy shock from the Middle East conflict. Despite the late-month easing, yields remained on track to end March up over 50 basis points, amid a broad inflation spike. Soaring energy costs pushed the Eurozone’s inflation rate to 2.5%, exceeding the ECB’s 2% target, while France’s EU-harmonized inflation jumped to 1.9% in March, the highest since August 2024. The data prompted markets to abandon ECB rate cut bets, now pricing in at least two hikes by 2026. French central bank chief François Villeroy de Galhau reaffirmed the ECB’s resolve to combat inflation but cautioned that discussions on rate timing were still premature.

France’s 10-year OAT yield hovered around 3.75%, near its highest level since June 2009, and was on track to rise by roughly 50 basis points in March. Investors grew increasingly wary of the economic consequences stemming from the Middle East conflict, now in its fifth week, which has kept oil prices elevated. Adding to the uncertainty, reports indicated that US President Donald Trump was prepared to end the US military campaign against Iran, even if the Strait of Hormuz remained largely closed. The surge in oil prices pushed Europe’s inflation higher, with France’s EU-harmonized inflation rate climbing to 1.9% in March from 1.1% in February. Markets responded by abandoning earlier expectations of a 40% chance of an ECB rate cut, now pricing in at least two interest rate hikes for 2026. While French central bank chief François Villeroy de Galhau reaffirmed the ECB’s determination to tackle energy-driven inflation, but called timing discussions premature.

France’s 10-year OAT yield hovered around 3.8%, close to its highest since June 2009, and was poised to end March up roughly 60 basis points. Investors stayed cautious amid the economic fallout from the prolonged Middle East conflict, with reports of US troop deployments for a potential ground operation overshadowing diplomatic progress claims. Adding to the pressure, flash CPI data from Germany and Spain pointed to rising inflation, while the Eurozone business survey showed a steep decline in sentiment as inflation expectations climbed. Markets have sharply revised ECB policy outlook, now pricing in at least two rate hikes in 2026, and possibly a third, discarding earlier expectations of a 40% chance of a cut. French central bank chief François Villeroy de Galhau underscored the ECB’s determination to curb energy-driven inflation, but cautioned that discussing specific rate timing remains “premature.”