Euro Yields Soar as Iran War Fuels Inflation Fears

European bond yields are at their highest levels in over 15 years as investors worry about the prolonged Iran war and its impact on energy prices and inflation. The Germany 10-year Bund yield held around 3.20%, close to its peak of 3.2118% reached in late July, a level not seen since May 2011.

The bond market's reaction reflects growing concern that the conflict could last longer than initially expected, with Iran calling on Washington to accept defeat and US President Donald Trump warning Americans to prepare for continued high fuel prices.

Higher oil prices can feed directly into consumer inflation while also increasing costs for businesses, making it more difficult for central banks to ease monetary policy. The conflict is also affecting borrowing costs across the euro zone, with the yield spread between 10-year Italian government bonds and German Bunds standing at 77 basis points, up from 63 basis points in February.