France’s 10-year OAT yield climbed back above 3.4%, reaching its highest level since February 9, as investors shifted focus back to inflation risks amid the intensifying Middle East conflict. The crisis has escalated sharply, with reports that a US submarine sank an Iranian warship near Sri Lanka and that NATO air defenses intercepted an Iranian ballistic missile aimed at Turkey. The resulting surge in energy prices is expected to keep inflationary pressures elevated across Europe, supporting expectations of a continued hawkish stance from the European Central Bank. February data reinforced these concerns, with euro area annual inflation at 1.9% and core inflation at 2.4%, both surpassing forecasts. Reflecting this shift, markets now price in roughly a 40% chance of an ECB rate hike by year-end, reversing last week’s similar odds for a rate cut, and see about a 60% probability of a hike by June 2027.
