Société Générale: Eurozone bond yield spreads are approaching the forecast upper limit, with 2027 budget negotiations emerging as a key risk

(1) According to a Société Générale interest rate strategist, the yield spreads of eurozone government bonds are testing the upper end of their forecast range, driven by ongoing geopolitical uncertainty and elevated oil and natural gas prices; these drivers are accompanied by growing global attention to increasing sovereign debt levels. (2) The strategist pointed out that the upcoming 2027 budget negotiations will be a key risk for all eurozone government bonds and could refocus investors' attention on the challenges of fiscal consolidation. (3) Although absolute yield levels and spreads appear attractive and provide good entry points, investors remain cautious about increasing risk exposures.