Euro zone bonds rise as higher yields attract buyers, AI concerns bring safety bid

By Stefano Rebaudo

Oct 15 (Reuters) - Euro zone benchmark Bund yields hit multi-week lows on Thursday after stocks sold off on AI concerns, driving investors into the safety of government debt.

French and Italian bond spreads over Germany tightened, suggesting the rally was not driven solely by a flight to safety.

The moves in bond markets occurred despite higher-than-forecast consumer and factory inflation readings in the US, with investors instead focusing on the wobble in tech stocks and credit markets.

AI cloud company CoreWeave CRWV.O was at the centre of the storm as its shares and bonds tumbled, signalling a crisis of confidence in an AI build-out increasingly financed with borrowed money.

Falling oil prices also put downward pressure on yields, with Brent futures dropping more than 1% as investors weighed risks to supply against US efforts to cut petroleum shipping costs.

Germany’s 10-year bond yield , the euro zone benchmark, was down 11 bps to 3.356%, its lowest level in over five weeks. The yield was on track for its biggest one-day fall since April. Bond yields move inversely with prices.

FISCAL CONCERNS REMAIN

Investor concerns about fiscal sustainability had been driving bond yields higher in recent months, particularly in countries with a high debt burden, but the strain in bond markets has started to ease.

"We think fiscal concerns will continue to weigh on government bonds in the medium term," said Massimiliano Maxia, senior fixed income strategist at Allianz Global Investors.

"But we are tactically increasing exposure to long-term maturities, including France, as yields look currently attractive."

France's 10-year bond yield was down 14 bps at 4.739%, on track for its biggest daily fall since May.

The yield gap between French OATs and German Bunds tightened 4.5 bps to 137 bps, after hitting 158.67 in early October, the widest level since November 2011, on concerns about the country's fiscal trajectory.

The Italian 10-year yield gap to Germany fell 4 bps to 104 bps, after reaching 129.74 earlier this month, the widest since April 2025.

RATE OUTLOOK

The outlook of the European Central Bank's rate path eased slightly, with money markets pricing an ECB deposit rate at 3.18% by late 2027, up from 2.50% currently. This implies two quarter-point rate hikes and around a 70% chance of a third. Market bets also implied a depo rate at 2.74% by December.

The German 2-year government bond yield , which is sensitive to policy rate expectations, fell 7 bps to 3.035%.