Eurozone Bond Yields Soar Amid Holiday Trading and Fiscal Concerns

Euro area bond yields surged to a one-month high in holiday trading, as U.S. treasury yields increased and euro area borrowing costs rose. Germany's bond yields hit their highest since November, while concerns over fiscal deficits caused French and Italian yield spreads to widen significantly.

In a thin holiday trading session, euro area benchmark Bund yields hit a fresh one-month high on Friday, triggered by movements in U.S. Treasuries. The latest shift comes as the yield on the U.S. Treasury note inched up, following strong demand in a recent seven-year note auction.

Monday witnessed a rise in euro area borrowing costs leading up to Christmas, despite European Central Bank President Christine Lagarde indicating that the euro zone is nearing its medium-term inflation target. Germany's 10-year bond yield, the eurozone standard, rose 2 basis points to 2.346%, marking its highest point since late November, while the ECB's deposit facility rate is projected at 1.83% by July 2025.

Meanwhile, Germany's 2-year yield, sensitive to ECB policy expectations, saw a slight drop. The yield spread between French bonds and secure Bunds increased to 82 basis points, following concerns about France's fiscal deficit. Italy's bond yields also rose, with the yield gap between Italian BTPs and Bunds reaching 116 basis points.

(With inputs from agencies.)