European stocks fall as bond yields hit multi-year highs on inflation, fiscal fears

European stocks fell sharply on Thursday as government bond yields across major economies rose to multi-year highs, with investors increasingly concerned about elevated inflation, tighter monetary policy and mounting fiscal pressures.

The pan-European STOXX 600 index started the final quarter of the year by losing 1.3 percent, closing at its lowest level in more than three months.

Germany's benchmark DAX fell 1.03 percent to 24,939.35 points, while France's CAC 40 lost 1.62 percent and Britain's FTSE 100 dropped 1.68 percent to a three-month low.

The decline came as government bond markets remained volatile following weeks of heavy selling, which has pushed borrowing costs sharply higher across Europe and beyond.

France was among the hardest-hit bond markets. The yield on its benchmark 10-year government bond rose as high as 4.96 percent during intraday trading, up from 4.85 percent at Wednesday's close and its highest level since 2002.

German borrowing costs have also risen sharply in recent weeks, with the benchmark 10-year Bund yield climbing above 3.6 percent, around its highest level since 2009.

Pressure was also evident elsewhere in Europe. The average yield on Latvian government bonds included in a Bloomberg index reached 3.8 percent in September, its highest since 2023. Poland's benchmark WIG20 stock index fell 1.9 percent on Thursday, with several major banks losing around 4 to 5 percent.

The rise in European yields came amid a broader global bond selloff. The benchmark U.S. 10-year Treasury yield climbed to 5.34 percent on Thursday, its highest level since 2002, adding upward pressure on borrowing costs worldwide.

But Europe is also facing its own pressures, with renewed inflation concerns and deteriorating fiscal outlooks weighing on bond markets.

Higher energy prices linked to the conflict in the Middle East have fueled concerns that inflation could remain elevated for longer, forcing central banks to keep interest rates high or tighten monetary policy further.

German inflation accelerated to 3.3 percent in September from 2.9 percent in August, while inflation in France rose to 3 percent. The renewed price pressures added to expectations that the European Central Bank may need to maintain a restrictive policy stance.

Fiscal concerns have also become an increasingly important factor, particularly in France, where high debt levels and large budget deficits have unsettled investors.

The French government on Thursday presented its draft 2027 budget aimed at reducing the fiscal deficit. However, economists at ING Research said the measures would not be sufficient to stabilize the country's debt ratio, while political uncertainty would continue to weigh on French government bonds. The yield spread between French and German 10-year government bonds has widened to as much as 133 basis points, the largest gap in 14 years, reflecting the higher returns investors are demanding to hold French debt amid concerns over the country's fiscal and political outlook.

European stocks fall as bond yields hit multi-year highs on inflation, fiscal fears

U.S. stocks finished modestly higher on Thursday as benchmark Treasury yields eased from fresh multi-decade highs, though gains were capped by advancing crude oil prices and mixed corporate results.

The Dow Jones Industrial Average rose 20.51 points, or 0.04 percent, to 50,926.56. The benchmark Standard and Poor's 500 added 14.91 points, or 0.19 percent, to 7,666.45, while the tech-heavy Nasdaq Composite Index gained 10.53 points, or 0.04 percent, to finish at 26,871.6.

Six of the 11 primary Standard and Poor's 500 sectors closed in negative territory, with healthcare and communication services pacing the decliners by dropping 1.3 percent and 1.19 percent, respectively. Energy and industrials led the advancers, climbing 1.92 percent and 1 percent, respectively.

In the fixed-income market, borrowing costs pulled back from intraday highs. The yield on the benchmark 10-year U.S. Treasury note eased to 5.24 percent after spiking earlier in the session to 5.34 percent, touching a new multi-decade peak. The 30-year Treasury bond yield similarly hovered near levels not seen in 24 years before moderating into the close.

Commodity markets saw notable gains, reigniting supply-side inflation concerns. West Texas Intermediate crude for November delivery advanced 2.45 U.S. dollars, or 2.71 percent, to settle at 92.87 dollars a barrel on the New York Mercantile Exchange. Brent crude for December delivery climbed 4.28 dollars, or 4.37 percent, to close at 102.31 dollars a barrel on the London ICE Futures Exchange.

On the corporate front, Accenture soared almost 16 percent to pace the Standard and Poor's 500 after fiscal fourth-quarter earnings and revenue beat expectations and its fiscal 2027 earnings guidance came in above analysts' expectations.

Semiconductor manufacturer Micron Technology jumped over 3 percent after reporting blowout quarterly earnings, with revenue rising nearly fourfold year on year. Meanwhile, scrutiny over financing arrangements within the artificial intelligence sector intensified following a Reuters report that Broadcom agreed to lend AI startup Anthropic up to 42 billion U.S. dollars to finance infrastructure spending. Anthropic is projected to become Broadcom's largest compute customer by next year.

On the macroeconomic front, initial filings for state unemployment benefits dropped for the fourth consecutive week, pointing to resilience in the U.S. labor market. In addition, executive coaching firm Challenger, Gray and Christmas reported that planned corporate layoffs fell in September, pointing to a persistent "low hire, low fire" employment landscape ahead of Friday's nonfarm payrolls report.

U.S. stocks edge up as chip stocks rally, bond yields retreat