Euro Zone Bond Yields Surge Amid French Auction and Snap Election

Euro zone government bond yields rose on Thursday with a French bond auction in focus ahead of a snap election on June 30. Germany's 10-year bond yield rose to 2.42%, while Italy's climbed to 3.98%. Investors are also monitoring central bank meetings, including the Bank of England's latest rate decision.

Euro zone government bond yields rose on Thursday with focus on a French bond auction that will test demand ahead of a snap election on June 30 and as investors awaited a string of central bank meetings on the edge of the bloc, including in Britain. Germany's 10-year bond yield, the benchmark for the euro zone, rose 1.8 basis points to 2.42%.

Italy's 10-year yield was higher by 3.7 basis points​ at 3.98%, and the gap between Italian and German Bunds widened 1.4 basis points to 155 bps. It hit 159.3 bps last week, its highest since February. The gap between France and Germany's 10-year yields stood at 73 basis points (bps), steady on the day, but below the seven-year high of 80 bps hit last week.

The spread has widened from under 50 bps since French President Emmanuel Macron called a snap parliamentary election to be held on June 30 and July 7 in response to a strong showing for far-right parties in the European Parliament election. "OATs (French government bonds) will face their next major test today with medium term and linker auctions scheduled," said Commerzbank analysts in a note.

They said France's debt office, the AFT, had announced a "relatively modest volume" range of 8 to 10.5 billion euros in contrast to the medium-term auction volume which had been closer to 12 billion euros in recent months. Investors are also watching central bank meetings, with the Bank of England announcing its latest rate decision at 1100 GMT.

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