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[Eurozone Bonds Fall, French Risk Premium Hits Highest Level Since 2012] ⑴ Eurozone bond prices fell on Friday, with the spread between French and German 10-year bond yields widening to its highest level since 2012. ⑵ Global central banks intensified their efforts to combat inflation, with the Federal Reserve and the Bank of Japan raising interest rates after the European Central Bank. ⑶ The Bank of England kept interest rates unchanged but hinted that it might raise borrowing costs if energy inflation triggered by the Middle East conflict worsens. ⑷ The yield on French 10-year bonds rose 13 basis points to 4.573%, and the Franco-German yield spread reached a full percentage point for the first time since July 2012. ⑸ The yield rose 12.5 basis points this week, the largest increase among G7 countries; the French two-year yield rose 15 basis points to 3.536%. ⑹ Economists say that due to a lack of catalysts to substantially improve the fiscal outlook, the French yield spread is expected to continue to widen. ⑺ Amid increasing pressure in the bond market and voter dissatisfaction with the cost of living, the French Prime Minister is working to finalize a 2027 budget aimed at controlling the deficit. (8) The cost of insuring against a French debt default has risen to its highest level since April 2025, and is higher than in any other developed economy. (9) The German 10-year yield rose 4 basis points to 3.52%, and the Italian 10-year yield rose 9 basis points to 4.43%. (10) Following the Federal Reserve's more restrictive stance, central banks may further strengthen their policy tightening bias. (11) However, investors are still betting that the path of rising interest rates will be more aggressive than predicted in the US policymakers' dot plot. (12) Money market data shows that traders expect the ECB's benchmark interest rate to rise from the current 2.5% to nearly 3% by the end of the year, and to about 3.27% in March, implying three more rate hikes in the next six months. (13) The German two-year yield rose 5 basis points to 3.263%, accumulating a rise of nearly 9 basis points this week, marking the sixth consecutive week of increases. (14) From a market sentiment perspective, fiscal credibility and austerity expectations are jointly pushing up the interest rate differential between peripheral and core Eurozone countries. 12. Going forward, attention should be paid to the details of the French budget, the statements of rating agencies, and the pace of interest rate hikes by the European Central Bank.