TS Pulse: Sovereign debt crisis – the sequel

20 years on and we’re back to comparing European sovereign yields and speculating at what point and how the ECB might step in.

• France’s government announced its budget with plans to narrow the country’s deficit sharply, including details of a €54B “effort” to curb spending and pare the fiscal shortfall. However, presenting a budget and getting it approved in France have been two different tasks in recent years. But with the ECB taking an ever closer look at the numbers, this time feels like “fraternité” is needed more than before. The spread between France’s 10-year bonds and Germany’s equivalent reached 150bps, doubling in the last three months; while the euro, at $1.12, is at a 17-month low versus the dollar.
• EU inflation hit 3.8% in September, above the 3.6% expected, driven mostly by a jump in energy inflation, from 14.3% to 18.8%. The increase in core inflation, from 2.4% to 2.5%, is still around its pre-war level, highlighting the dilemma the ECB has. They may go early with their next hike if there is any further increase in the next few weeks, but the market seems certain of a hike before year end.
• US GDP growth figures showed an economy much stronger than expected. Q2's final figure was 2.2% versus 1.5% expected, after a 0.7% upward revision from the initial estimate, reflecting positive amendments to investment and consumer and government spending.
• US PCE inflation readings, both headline and core, held in August at their July levels of 3.7% and 3% respectively, when both were expected to climb 0.3%. Some moderation in inflation could buy the Fed a month without hiking, but it is still well ahead of its 2% target. 
• UK Q2 GDP growth of 1.4% was ahead of the 1.2% expected. This was the strongest economic expansion since Q1 2025, mainly supported by a 1.7% increase in services output. On the expenditure side, household and government consumption both increased 1.2%, while exports increased 4.2% and imports rose 2.5%, resulting in a positive contribution from net trade.

Source: Bloomberg; pricing as per 6 October 2026

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