France’s 10-year OAT yield jumped back above 3.5%, its highest level since January 21, as investors increasingly factored in a more hawkish approach from the European Central Bank amid renewed inflationary pressures. Rising geopolitical tensions linked to the Iran conflict have pushed energy prices higher, fueling inflation concerns and prompting markets to reassess the outlook for monetary policy. Although oil prices have eased from peaks above $100 per barrel, the earlier spike has already had a significant impact on rate expectations. Money markets are now pricing in an interest rate hike from the ECB later this year, a notable shift from the previously modest chance of a rate cut before the conflict. On Tuesday, Christine Lagarde reiterated that the central bank remains prepared to take all necessary actions to keep inflation under control, despite ongoing energy price pressures.
