Eurozone bond yields stabilized, France-Germany spread narrowed sharply

On Tuesday, eurozone government bond yields remained in a narrow range. France's borrowing costs rose slightly after a record five-month decline, and the yield gap between French and German bonds narrowed at the fastest pace in more than six years.

The yield on ten-year French bonds rose to 4.922 percent, moderately recovering after the sharpest one-day decline since May. The spread between the yields on ten-year French OAT and German Bund narrowed by 13.8 basis points to 153 basis points. This was the sharpest one-day narrowing of the spread since the start of the pandemic shock in March 2020.

German government bond yields showed restrained dynamics. Ten-year papers remained virtually unchanged at 3.064 percent, stabilizing after the sharpest jump since September. The yield on two-year papers also remained unchanged at 3.349 percent.

Market participants' attention is focused on the European Central Bank meeting on Thursday. Markets generally expect the regulator to leave the base deposit rate unchanged at 2.50 percent. Interest rate futures price in about 80 percent probability of another 25 basis point rate hike at the December meeting.

Geopolitical tensions in the Mediterranean region also affected the market. On Tuesday, October 27, 2026, elections to the 26th Knesset were held in Israel. Yields on Israeli bonds rose sharply, reaching a weekly high of 4.067 percent. Deutsche Bank analysts noted that these elections could potentially be of great importance for global markets.