France’s OAT Yields Rise on Geopolitical and Inflation Risks

France’s 10-year OAT yield increased toward 3.8% after the Easter holiday, moving closer to the multi-year highs seen at the end of last month, amid escalating Middle East tensions. Investors are proceeding with caution, adopting a "wait-and-see" stance as they monitor US President Donald Trump’s ultimatum for Iran to reopen the Strait of Hormuz and agree to a ceasefire, or risk military retaliation. Trump’s threat of large-scale strikes on Iranian infrastructure has pushed energy prices higher, leading markets to anticipate three interest rate hikes by the European Central Bank in 2026. ECB Governing Council member Pierre Wunsch told the Wall Street Journal that the bank may raise rates multiple times, starting as early as this month, if the Middle East-driven energy crisis lingers.

France’s 10-year OAT yield pushed above 3.7% on Thursday, approaching its highest level since June 2009, as Middle East tensions continued to pressure European bond markets. President Donald Trump’s address, which failed to outline a clear path to resolving the conflict, triggered further selling. While Trump suggested the US operation was nearly complete, his commitment to escalated actions, including potential strikes on electrical plants, added to investor unease. The lack of new justification for the war, coupled with rising uncertainty, has sharpened inflation worries and forced a reassessment of the European Central Bank’s policy trajectory. Markets now anticipate three interest rate hikes in 2026, up from two expected just yesterday. Before the conflict, investors had priced in no hikes, with some even speculating about possible monetary easing.

France’s 10-year OAT yield edged down toward 3.6%, retreating from multi-year highs, as rising hopes for a quick resolution to the Iran conflict alleviated worries about spiraling energy prices and aggressive ECB rate increases. US President Donald Trump’s remark that the US could leave Iran "in two or three weeks," regardless of a deal, bolstered cautious optimism, though mixed signals from Washington sustain uncertainty in the war’s fifth week. Markets have adjusted their ECB rate hike expectations, now anticipating only two increases by December, compared to three forecast earlier this week. Before the conflict, investors had expected no hikes in 2026, with a minor chance of policy loosening.