French Bond Yields Remain High as US-Iran Crisis Fuels Inflation Worries

France’s 10-year OAT yield remained steady at 3.7%, close to its highest level in years, as inflation concerns flared following the failure of US-Iran peace talks. The US attributed the breakdown to Iran’s refusal to abandon its nuclear ambitions, while Iranian officials criticized "unreasonable" US demands. Heightening tensions, US President Donald Trump threatened to impose a blockade on the Strait of Hormuz, a key oil transit route, driving Brent crude prices up to $102 per barrel. The surge has intensified the global energy crisis, stoking fears of an inflation shock and leading traders to anticipate nearly three ECB interest rate hikes by the end of 2026, an increase from two just last week.

France’s 10-year OAT yield climbed above 3.65% by the end of a volatile week, yet remained on course for a 2-basis-point weekly decline, largely due to Wednesday’s sharp 21-basis-point drop. Despite the easing, European borrowing costs remain elevated, mirroring rising oil prices as investors turn their attention to upcoming US-Iran ceasefire talks. Persistently high oil prices have reignited inflation concerns, prompting markets to brace for a more aggressive European Central Bank, with traders now pricing in at least two rate hikes by the end of 2026. Iran’s near-total blockade of the Strait of Hormuz, the worst energy disruption in history, persists, while US President Donald Trump balanced optimism with warnings over Iran’s new shipping fees. Meanwhile, Ukraine’s top negotiator unexpectedly signaled progress toward a potential peace deal with Russia, providing a rare boost to market sentiment.

France’s 10-year OAT yield rebounded to 3.64% on Thursday, trying to recover from a 21-basis-point drop from the previous session. The shift followed mounting skepticism over the US-Iran ceasefire, which pushed oil prices higher and reignited inflation worries, particularly after Israel’s deadliest Lebanon airstrikes yet, killing hundreds and drawing Iranian retaliation threats. Tehran rejected further US negotiations, while the Strait of Hormuz blockade kept pressure on the fragile truce. US President Donald Trump escalated tensions by pledging to maintain forces near Iran until a “real agreement” is secured. Markets adjusted expectations, pricing in tighter ECB policy with at least two rate hikes anticipated by end-2026.