ECB Inflation Warning Sparks Bond Selloff Across Europe

The European bond selloff has intensified after ECB President Christine Lagarde flagged inflationary risks. This move has added to investors' concerns about elevated energy prices, which are driving up inflation fears.

Germany's two-year yield rose by as much as 12 basis points to 3.19%, the highest in nearly three years. Traders have increased their bets on further interest-rate hikes in the euro area.

Swaps now fully price three more quarter-point increases by the middle of next year, with a more-than-50% chance of a move next month. This suggests that investors are anticipating a continued tightening of monetary policy to combat inflation.