Euro zone bond yields hold near multi-year highs as selloff slows

Euro zone government bond yields remained near or at multi-year highs on Thursday, even as the pace of a broad selloff moderated, with the pressure most acute in the debt of the bloc's more heavily indebted members.

Germany's 10-year yield, the benchmark for the currency area, held steady at 3.547%, just below a 17-year peak of 3.5723% touched last week. Yields rise as bond prices fall.

The move has been sharper in countries carrying larger debt burdens, notably France and Italy. France's 10-year yield was little changed at 4.655% after earlier climbing to its highest level in more than 18 years.

The gap between French and German 10-year yields widened past 110 basis points, the widest since mid-2012. A widening spread is generally read as a sign that investors see more risk in holding French government debt than German paper.

France has drawn particular attention as it moves towards a 2027 election year, with a substantial primary deficit and budget risks stemming from a fragmented parliament.

The selloff gathered pace on Wednesday after upbeat business activity readings in both the euro zone and the United States. The 10-year U.S. Treasury yield rose by as much as 16 basis points to its highest since July 2007, its sharpest daily increase since the market turmoil of 2025.

"The combination of a continued strong economy together with high energy prices lifts expectations of policy rate hikes further," SEB economist Marcus Widén said.

Money market futures were pricing in 35 basis points of tightening from the European Central Bank by the end of the year, implying one quarter-percentage-point increase and roughly a 40% chance of a second.

Germany's two-year yield, which is sensitive to shifts in ECB policy expectations, was flat at 3.288%.