European government bonds sold off sharply on Monday, pushing French borrowing costs to their highest level since 2009 as traders reassessed the inflation outlook. The catalyst was President Donald Trump's declaration ending the ceasefire with Iran, which sent oil prices surging and reignited fears that energy costs will keep price pressures sticky.

The yield on French 10-year debt climbed above 3.4%, widening the spread over German bunds to the widest since the euro-zone debt crisis. Peripheral markets including Italy and Spain saw similar moves, reflecting concern that higher-for-longer rates will strain fiscal positions just as the ECB weighs the pace of policy easing. Swaps markets trimmed bets on rate cuts, now pricing roughly 60 basis points of easing by year-end versus 75 basis points last week.

Corporate borrowers face a dual hit: rising benchmark yields and widening credit spreads. Investment-grade issuance slowed as treasurers wait for volatility to subside, while high-yield refinancing risk intensifies for companies with maturities in 2025-26. Equity markets pared gains, with energy the sole sector in positive territory.

The episode underscores how quickly geopolitical shocks can unwind the disinflation narrative that has underpinned European risk assets. With the ECB's June meeting approaching, officials must now weigh whether the oil spike is transitory or requires a more cautious policy stance.