The early days of 2025 have been marked by heightened volatility in rate markets, driven by fiscal concerns and policy uncertainty across Europe. As governments grapple with balancing fiscal sustainability and economic growth, bond yields are climbing, reflecting a broader repricing of risk. Speculation around tariffs and their potential inflationary impact further complicates the landscape, likely increasing country risk premiums until more clarity emerges. In the UK, the auction of £1 billion in 30-year inflation-linked gilts is under scrutiny, following a weak demand for traditional bonds last week, highlighting investor concerns over persistent inflation and high borrowing needs.
In France, Prime Minister François Bayrou's upcoming €50 billion savings plan aims to stabilize public finances amid widening deficits and sluggish growth. The French-German 10-year bond yield spread, currently around 84 basis points, serves as a critical measure of investor confidence in France's economic governance. A widening spread could indicate rising political and fiscal risks, affecting capital allocation decisions.
The US 10-year Treasury yield (TNX) remains steady at 4.80% as of 02:40 on January 14, 2025, unchanged from its last close. The stability in US yields contrasts with the turbulence in European markets, underscoring differing fiscal and economic dynamics between the regions.