Euro zone government bond markets showed signs of stabilization on Friday after a week marked by heightened volatility driven largely by concerns over the fiscal health of France and other heavily indebted member states.

Over the past several days, risk premiums on French and Belgian sovereign debt reached their highest levels in more than ten years. French 10-year yields, which had surged by nearly 27 basis points during the week—the largest weekly increase among major euro zone nations—settled 5 basis points lower at 5.04 percent on Friday. Belgian yields also climbed by almost 19 basis points, while Italian borrowing costs rose by 11 basis points over the same period.

In contrast, traditionally safer assets such as German and Dutch 10-year bonds saw their yields decline earlier in the week by 7 and 6 basis points, respectively. On Friday, however, these yields reversed some of the earlier gains, each edging up by 2 basis points to close at 3.35 percent for Germany and 3.46 percent for the Netherlands.

Market participants are closely watching the series of upcoming central bank policy decisions scheduled for next week, involving the US Federal Reserve, the Bank of Japan, and the European Central Bank (ECB). The consensus expectation is that all three institutions will maintain current interest rates. Investors are particularly attentive to statements from ECB President Christine Lagarde for insights into the economic outlook and potential risks tied to stress in French government bonds, which could trigger broader market concerns.

Analysts at Mizuho noted that one reason against raising rates immediately is that monetary tightening has already been substantial. They pointed out that, in addition to the 50 basis points of official rate increases so far, long-term bond yields have climbed an additional 50 to 75 basis points. This combination is effectively tightening financial conditions, fulfilling some of the ECB’s intended policy impact. Nevertheless, they cautioned that a pause in rate hikes should not be interpreted as a signal that inflationary pressures have been fully contained.

Elsewhere, oil prices climbed 5.6 percent this week, pushing futures above $115 per barrel, largely fueled by renewed attacks from Houthi rebels on Gulf energy infrastructure. Normally, such moves in oil markets might weigh on government bonds, but this factor appears to have taken a backseat amid broader investor concerns.

Specifically, questions about the return on investment for the trillions of dollars being spent on artificial intelligence infrastructure have reignited demand for government bonds as a haven, especially outside the euro zone.

Economic data released on Friday showed the euro zone private sector’s growth slowing to its weakest in four months during October. The slowdown was attributed to rising energy costs and a fresh contraction in France, where political and financial instabilities are intensifying. Rory Fennessy, an economist at Oxford Economics, remarked that while the euro zone economy had exceeded expectations over the spring and summer, the early indicators for October suggest that optimistic sentiment may now be cooling.