French government bonds and other eurozone periphery debt suffered significant losses, while Brent crude soared more than 3.5%, prompting traders to ramp up expectations for further European Central Bank rate increases.

The yield spread between French and German 10-year bonds widened by 6 basis points to 110 basis points, a level that has remained near its widest since 2012 over the past two weeks. Strategists at Societe Generale noted that 120 basis points is now within reach, while their counterparts at HSBC also view that level as the next key psychological threshold.

The gap between Italian and German 10-year yields expanded by 5 basis points to 94 basis points. Market pricing for ECB rate hikes jumped by as much as 13 basis points, with swaps now fully reflecting four quarter-point moves by October 2027, placing the implied deposit rate at 3.5% for the first time in this tightening cycle.

Brent crude surged to touch $103 per barrel. Traders are closely monitoring a sharp rise in diesel prices while simultaneously evaluating the outlook for recovering crude supply from the Middle East.

UK gilts experienced a substantial bearish flattening, pushing the 10-year yield up by 10 basis points, the first such move since September 10th. Traders now anticipate 40 basis points of rate hikes from the Bank of England this year and 117 basis points in total by the end of 2027.

In market action: German 10-year yields climbed 9 basis points to 3.55%, while Bund futures dropped 81 ticks to 120.30. Italian 10-year yields rose 14 basis points to 4.49%, French 10-year yields gained 15 basis points to 4.65%, and UK 10-year yields advanced 10 basis points to 5.34%.