European Bond Yields Rise Amid Inflation Fears, Gas Prices Remain High

German government bond yields are on track for their fourth consecutive weekly rise since mid-July, as investors bet that central banks will keep policy restrictive to combat inflation. The 10-year German government bond yield was flat at 3.35%, set for a weekly increase of 7.5 basis points.

Natural gas prices are also in focus, with markets becoming more sensitive to European gas than crude alone. Analysts note that the euro zone has shifted away from Russia and Ukraine towards Norway and US alternatives due to lower-than-average gas storage levels.

The European Central Bank's (ECB) deposit rate is priced at 2.73% by December, implying a roughly 90% probability of a second rate hike after the expected increase later this month. Traders expect the policy rate to reach 3% by September 2027.