French Bonds Rally on Budget Hopes amidst Political Calm

In a notable shift, euro zone bond yields dropped on Wednesday, spurred by a touch of optimism from France. French bonds showed slight outperformance amidst the growing likelihood that the nation's parliament could finalize a budget by year-end. This development follows a recent upswing in global yields driven by political shifts in France and Japan.

Caretaker Prime Minister Sebastien Lecornu expressed a cautiously optimistic view regarding France's budget talks, hinting at reduced chances of a snap election. Consequently, France's 10-year bond yield fell five basis points to a 3.52%, recovering from an earlier peak following Lecornu's resignation.

Elsewhere, German bond yields saw modest declines, albeit euro zone investors had little additional data to react to. Notably, Germany's industrial output figures disappointed, but economic gloom remains insufficient to prompt an ECB rate change. Meanwhile, the U.S. Federal Reserve's minutes loom amid a data-sparse environment due to a government shutdown.

(With inputs from agencies.)