U.S. treasury yields edge up, bond market focus to stay on France

U.S. Treasury yields edged higher in Asian trade on Friday, having slid sharply on Thursday as investors sought safe havens from the turmoil in French government bonds.Protests, a government trying to pass a budget and presidential elections in the spring of 2027 complicate France’s fiscal challenges further.The 10-year Treasury yield, which fell below 5% for the first time in a month on Thursday, traded 1.5 basis points higher at 4.967%, according to Tradeweb. The 10-year Treasury yield declined 19.3 basis points on Thursday in its largest one-day fall since March 2023.Investors’ concern over France’s fiscal challenges and the risk that high oil prices could dent economic growth have prompted a search for safe haven investments, and U.S. Treasurys were beneficiaries of that.“The market has real concerns about the French fiscal situation,” said Maria Llerena, director of financial research at Domini Impact Investments.Protests, a government trying to pass a budget and presidential elections in the spring of 2027 “complicate things further.”Sharp selloffs pushed the 10-year French OAT yield to 5.142% on Thursday, the highest level since 2002, while the 10-year OAT-Bund yield spread widened to 177 basis points, the widest since late 2011, according to LSEG.On Friday, Moody’s Ratings will review France. The ratings firm has an Aa3 rating with negative outlook on France, “and there is a significant likelihood of a downgrade,” said Jens Naervig Pedersen, director in fixed income and forex research at Danske Bank, in a note.A downgrade, however, is fully priced in and it should not have a significant impact, he said, shifting the focus on the outlook of the rating.“If Moody’s places France on a stable outlook, then the focus on the rating should diminish,” he said.Write to Emese Bartha at emese.bartha@wsj.com