FX.co ★ French 10Y OAT Yield Surges to Highest Since 2011

France’s 10-year OAT yield has risen above 3.65%, its highest level since November 2011, as mounting tensions in the Middle East intensify inflation fears and bolster expectations of additional interest rate hikes by the European Central Bank. Oil prices continue to climb despite recent measures intended to ease the energy supply shock, with investors doubting that these actions will fully counter potential disruptions in the Strait of Hormuz. The surge in energy costs has prompted money markets to factor in two ECB rate increases this year, a marked shift from last month, when no policy changes were anticipated. Market focus now turns to the ECB’s upcoming policy meeting, where President Christine Lagarde is expected to clarify how the central bank plans to shield the eurozone from inflationary pressures arising from the conflict. Earlier this week, she reaffirmed that the ECB stands ready to act to prevent a repeat of the inflation shocks that followed Russia’s invasion of Ukraine.