Global Bonds Stabilize After Selloff Pushes French, UK Yields to Multi-Decade Peaks

Global bond markets steadied on Friday morning, with yields retreating after a turbulent Thursday that saw government borrowing costs across Europe and the United States surge to multi-decade highs.

Yields, which move inversely to bond prices, eased as Brent crude declined roughly 2% to near $99.95 a barrel, alleviating concerns that an energy shock would sustain elevated inflation and compel central banks to pursue further rate increases.

In the United Kingdom, the yield on 30-year government bonds, or gilts, fell to approximately 5.92% after breaching 6% on Thursday for the first time since 1998. The 10-year yield declined to about 5.37%, retreating from the 19-year peak reached earlier in the week, while the two-year yield slid more than six basis points to around 4.77%.

Thursday’s selloff also punished British bank shares, with NatWest, Lloyds, HSBC, and Barclays each dropping between 4% and 5%.

Losses deepened after Sky News reported that Chancellor John Healey had summoned banking executives to a meeting ahead of his 28 October budget, fueling speculation about potential new taxes on the sector.

France in the Firing Line

France’s 10-year yield climbed to 4.96% on Thursday, its highest level since July 2002, before moderating to about 4.92% by 11 a.m. CEST on Friday. The premium investors demand to hold French rather than German debt widened beyond 140 basis points this week, the largest spread since 2012.

That gap jumped 13.9 basis points on Thursday, marking its biggest single-day increase since March 2020, according to Deutsche Bank strategist Jim Reid.

“The daily moves were reminiscent of the euro crisis in many respects, with sovereign contagion a major talking point,” Reid wrote in a note to clients.

The selloff coincided with Paris unveiling a 2027 budget targeting €43 billion in fresh savings to narrow the deficit from 5.4% of GDP this year to 5% next year. Public debt stands at a post-war record of 119% of GDP, and France plans to borrow a record €340 billion next year.

“Here and there, I hear the prophets of doom promising us worse times ahead. I would like to reiterate here that France’s signature is solid,” French Finance Minister Roland Lescure said.

France’s fiscal watchdog, the High Council of Public Finances, struck a less optimistic tone, calling the government’s 1% growth forecast for 2027 optimistic and a return below the European Union’s 3% deficit limit by 2029 very unlikely.

“With a difficult political process ahead, French bonds are likely to remain under pressure, while the threshold for ECB intervention remains high,” ING analysts wrote.

Far-right leader Marine Le Pen leads polls ahead of next spring’s presidential election.

Fresh data added to the inflation concerns underpinning the selloff, as eurozone inflation accelerated to 3.8% in September, its highest level in three years, up from 3.2% in August, according to Eurostat’s flash estimate released Friday.

Economists had anticipated 3.6%, while Spain’s annual rate reached 5%.

It marked the seventh consecutive month above the European Central Bank’s 2% target, with traders pricing in a further quarter-point increase in the ECB’s deposit rate to 2.75% by year-end, following hikes in June and September.

US Treasuries Retreat from 24-Year High

In the United States, the 10-year Treasury yield rose to 5.34% on Thursday, its highest since 2002, before pulling back to around 5.26%.

Surging energy costs are stoking inflation, while the artificial intelligence and data-center boom competes for capital. Following a rate increase in September, markets anticipate at least three more from the Federal Reserve by mid-2027.

“As yields have crept higher, that is going to tighten financial conditions and could increase the risk of a slowdown,” said Danny Zaid, portfolio manager at TwentyFour Asset Management.

Overall, the interest bill is mounting.

Developed economies paid more than $3.3 trillion (€2.9 trillion) in interest on internationally traded government bonds over the past year, according to the Washington-based Institute of International Finance—exceeding estimated global spending on defense or artificial intelligence.

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