U.S. Treasury Yields Retreat as French Fiscal Crisis Eases, but Rebound Risks Remain

French Bond Yields Plummet; Oil Prices Stabilize
U.S. Fiscal Deficit Remains Key Issue
"Warning to Governments"

Reuters Yonhap News

After soaring to record highs and weighing on the global economy and stock markets, U.S. Treasury yields turned lower. This shift has been attributed to easing concerns over France's fiscal crisis, which led to declines in European sovereign bond yields, as well as expectations of restored oil supply chains in the Middle East that have reduced inflationary pressures. However, experts noted that the main underlying issue behind the surge in U.S. Treasury yields—the fiscal deficit—shows no signs of resolution, suggesting that yields could rebound again.

According to CNBC on the 6th (local time), the yield on the U.S. 10-year Treasury note fell by 4.4 basis points (1bp=0.01%) from the previous day, closing at 5.26%. The rally in 10-year yields, which had surged to a 24-year high the previous day, has been broken. The 30-year yield also dropped by 5.6 basis points to 5.66%.

The easing of France’s fiscal crisis concerns and the sharp decline in European government bond yields put downward pressure on U.S. Treasury yields. On this day, Marine Le Pen, a National Rally (RN) member of parliament who is leading the French presidential polls, pledged to reduce France's fiscal deficit to below 3.0% of GDP—the European Union's fiscal rule threshold—by 2030. She also stated that the deficit could be cut to below 2.5% by the end of the next presidential term in 2032.

Le Pen emphasized, "Taking into account rising interest rates and the weak budget proposals put forward by Prime Minister Sebastien Lecornu and President Emmanuel Macron, we can already announce that we will necessarily cut 140 billion euros by 2032."

As concerns about what was once a potential French default eased, the yield on the French 10-year government bond plummeted by 11.23 basis points from the previous day to close at 4.75%—the lowest level since September 25. The drop in French bond yields also contributed to declines in other major European bond yields: Germany’s 10-year bund yield fell by 3.1 basis points to 3.48%, and the UK’s 10-year gilt yield slipped by 1.8 basis points to 5.37%.

Stabilizing oil prices, helped by alleviated pressures on oil supply chains in the Middle East, also contributed to the decline in bond yields. According to CNBC, despite reports of Saudi airstrikes and an additional tanker attack in the Strait of Hormuz, international oil prices held steady. December Brent crude closed at $100.58 per barrel, up 0.26% from the previous session. November West Texas Intermediate (WTI) also edged up by 0.01% to $89.44 per barrel.

It was reported that drone strikes by Yemen's Houthi militants damaged airports and oil refineries in Riyadh and several other Saudi cities. In addition, a Panama-flagged oil tanker in the Strait of Hormuz was attacked by a projectile, leaving 12 crew members injured. Nevertheless, news of oil supply recovery via Saudi Arabia's East-West Pipeline helped keep international oil prices relatively steady.

However, there are concerns that unless the underlying cause of recent yield surges—the U.S. fiscal deficit—is addressed, sharp increases could occur again. Jamie Dimon, CEO of JP Morgan Chase, said in an interview with Bloomberg TV, "The recent bond sell-off and rising yields are a warning to governments around the world. The U.S. debt-to-GDP ratio has risen from 50% to 100%, but borrowing continues. If this starts to affect corporate debt and credit spreads, inflation will persist and there will be a risk of continued rate increases," he warned.

This content was produced with the assistance of AI translation services.