European Bond Yields Soar Amid Energy Price Fears
European bond yields rose to their highest levels in almost three years after European Central Bank President Christine Lagarde warned of inflation risks. Germany's two-year yield increased by as much as 12 basis points to 3.19%, with traders betting on further interest-rate hikes in the euro area.
The ECB raised rates by 25 basis points last Thursday, but Lagarde noted that the conflict in the Middle East and Russia's war against Ukraine have pushed energy prices up further. She added that inflation is set to remain above the central bank's 2% target for an extended period.
Energy prices are a major concern, with Brent oil spiking above $105 a barrel and European natural gas prices hitting their highest since late 2022. This has led to widespread bond selloffs across Europe, including in France and the UK.
Patrick Ernst, a macro investment strategist at JPMorgan Private Bank, said that another interest-rate hike before year-end is no longer a tail risk. 'Policymakers made clear that an energy-led inflation risk is still very much in play.'