U.S. Treasury yields were largely flat on Monday, remaining close to levels not seen in decades as market participants absorbed a mix of weaker U.S. labor metrics and ongoing fiscal pressure overseas. The benchmark 10-year U.S. Treasury yield stood unchanged for the day at 5.276%, near its highest point since 2007 after a sharp third-quarter sell-off.
At the short end of the curve, the policy-sensitive two-year Treasury yield moved slightly lower to 4.818%. Traders have increased the probability of the Federal Reserve pausing its tightening cycle at the next policy meeting in light of Friday's softer-than-expected nonfarm payrolls report, which has tempered expectations for further immediate rate hikes.
Across Europe, government bond markets showed signs of stabilization following an earlier, violent sell-off in French paper that reverberated through currency markets and helped push the euro down to a 17-month low versus the U.S. dollar.
France's two-year yield retreated to 3.666% after spiking nearly 76 basis points earlier in the session to reach 4.467%. The benchmark French 10-year OAT yield eased to 4.834%, having traded near 2002-era territory above 4.96% earlier, while five-year French debt extended its upward run for a ninth consecutive session.
Concerns about Paris's fiscal outlook were reflected in credit protection markets, where five-year credit default swaps were trading around 87 basis points - their highest level since 2013 - highlighting market skepticism about the government's ability to manage its draft 2027 budget bill.
The turmoil in French assets highlighted fragmentation within Eurozone debt markets and prompted flows into higher-rated core paper. Germany's 10-year Bund - the benchmark for the single-currency bloc - was trading near one-month lows after briefly touching 3.475% late last week, while the two-year German yield held around 3.01% as investors moved capital into perceived safe-haven assets.
Market participants also digested fresh economic indicators and commentary from European Central Bank officials. Eurozone composite purchasing managers' index data showed business activity expanding at the fastest pace in nearly 3.5 years. ECB Chief Economist Philip Lane warned that energy price spikes represent upside risks to inflation, and he noted that elevated sovereign yields and shrinking budget support continue to weigh on broader growth prospects.
Overall, trading desks described the session as a consolidation phase: yields remained elevated, pockets of stress in peripheral markets eased modestly from intraday extremes, and core sovereigns benefited from flight-to-quality flows amid ongoing uncertainty over fiscal and geopolitical developments.
Market impact overview
- U.S. Treasuries: 10-year yield steady at 5.276%, two-year at 4.818%.
- French government debt: two-year at 3.666% after a sharp earlier spike; 10-year OAT at 4.834%; five-year paper up for a ninth session.
- Credit risk: five-year French CDS around 87 basis points, highest since 2013.
- German bunds: 10-year near one-month lows, two-year close to 3.01% as investors seek safety.