FX.co ★ French Bond Yields Decline

France’s 10-year OAT yield declined toward 4.9%, mirroring the drop in US Treasury yields after the Democrats scored sweeping gains in the US midterm elections. A Democratic takeover of the House is widely viewed as lowering the probability of additional deficit-boosting measures under the Trump administration, thereby easing concerns about a further rise in US government borrowing.

Nonetheless, ongoing worries about France’s own fiscal trajectory continued to weigh on domestic bonds. At the same time, increasingly hawkish remarks from European Central Bank policymakers strengthened expectations of a tighter monetary policy path. Although the ECB left interest rates unchanged last week, officials signaled that further increases may still be required to rein in inflationary pressures and prevent them from feeding through into wages.