On Thursday, October 8, euro-area sovereign yields rose almost everywhere. The 10-year Italian BTP (the benchmark Italian government bond) trades around 4.70%, up about five basis points, while the German Bund climbs more moderately to 3.52% and the French OAT reaches 4.92%. The BTP-Bund spread stands at roughly 118 basis points, while the OAT-Bund spread widens to about 140: France continues to pay about 20 basis points more than Italy to borrow for ten years, a reversal that would have seemed unthinkable at the start of the year.
Two distinct forces are pushing in the same direction. The first comes from across the Atlantic: the minutes of the Federal Reserve’s September 15-16 meeting, released Wednesday evening, show a united committee, with all nineteen members backing the September hike and a majority expecting another increase before year-end. The 10-year Treasury yield stands today at 5.35%, and markets price a probability of roughly 78% of a further Fed hike in December. The second force, less discussed but just as concrete, comes from inside the eurozone: inflation accelerated in September by more than expected, just as the European Central Bank (ECB) approaches one of its most delicate meetings in recent months.
The inflation that complicates Frankfurt’s calculations
According to Eurostat’s flash estimate, euro-area inflation rose to 3.8% year on year in September, from 3.2% in August: the third consecutive month of acceleration. Energy is the main driver, with its annual rate jumping to 18.8% from 14.3%; services rose to 3.2% from 3%, while non-energy industrial goods stayed essentially stable at 1.1%. More significant for the ECB is the core reading, which excludes the more volatile components: it rose to 2.5% from 2.4% in August, above the 2% target and in the opposite direction from the one policymakers had hoped for. In Italy, September inflation came in at 4.1%, above the euro-area average.
The data arrives after the ECB, on September 10, had already raised all three of its key rates by 25 basis points, taking the deposit rate to 2.50% and citing price pressures tied to the conflict in the Middle East. ECB President Christine Lagarde called that decision «a no-brainer» (an almost obvious choice), adding: «We believe inflation will be more persistent than we had anticipated.» The Governing Council’s official statement, however, did not commit to any future path, promising a «data-dependent, meeting-by-meeting» approach.
A Governing Council member warns on yields
It is in this context that the remarks of Alexander DeMarco, governor of the Central Bank of Malta and a member of the ECB Governing Council, should be read. On September 29 he said openly: «Stronger underlying inflation could be a reason to act» and «I wouldn’t rule out a rate hike in October.»
In the same appearance, according to market news agencies that picked up his comments, DeMarco also signaled some concern about the recent rise in long-term yields, in an economic picture he judges still fragile. That warning weighs as much as his openness to another hike. It is the central tension the ECB will have to resolve on October 29: inflation that would call for another tightening, and a bond market that is already partly delivering that tightening on its own through rising yields, with the risk of tighter financial conditions even without any new move.
The market remains divided on the October 29 ECB meeting
The ECB’s next monetary policy meeting is scheduled for October 28-29, with the decision expected at 2:15 p.m. CET on the 29th and Lagarde’s press conference at 2:45 p.m. Market surveys gathered in late September pointed to a probability of between 60% and 75% of a hike to 2.75%, but investment banks remain split.
Goldman Sachs and UBS expect the next move only in December, Danske Bank does not rule out action either in October or by year-end, and MUFG believes the hiking cycle is already over. It is this uncertainty, more than any single inflation reading, that is keeping bond markets on edge in these weeks.
Why European debt is diverging again
How yields are rising matters as much as the fact that they are rising. The German Bund, though higher, remains the steadiest of the three: Germany continues to benefit from its safe-haven status within the euro area. The Italian BTP is rising by a similar amount but starts from an already higher level, while the French OAT continues to pay the widest premium of the three, a reflection of the budgetary and political instability that the market has not yet put behind it.
A BTP-Bund spread above 115-120 basis points is far from the stress levels Italy has experienced in the past, but the direction, upward across nearly the whole European curve with the relative exception of Germany, describes a market preparing for a higher cost of money for longer, not a lower one.
Editor’s note
This article was originally published in Italian on money.it by Flavia Provenzani on October 08, 2026 as «L’inflazione dell’eurozona sale al 3,8%, un consigliere BCE non esclude un rialzo a ottobre. I rendimenti sovrani tornano a salire». It has been translated and adapted for an international audience by the Money.it International desk.
