Euro Zone Bond Yields Rise Amid US-Iran Conflict and Higher Oil Prices

The euro zone government bond yields rose on Monday as oil prices climbed due to doubts about resolving the US-Iran conflict and reopening the Strait of Hormuz. Germany's 10-year bond yield, the euro zone benchmark, reached its highest level since June 2009 at around 3.6416%. This marks a seventh consecutive weekly increase and is on track for a monthly rise of over 31 basis points.

The continued impasse between the US and Iran pushed oil prices higher, with Brent crude futures up about 4% at $108.50 a barrel. Rising energy prices and expectations of higher interest rates have kept pressure on government bonds globally in recent months. The European Central Bank has already raised rates twice this year to combat inflation, and money markets are pricing in at least one further increase by year-end.

Looking ahead to October 2027, they are pricing in roughly 100 bps of further tightening. Attention now turns to flash inflation figures due later this week that could reshape interest-rate expectations. Euro area inflation is expected to have accelerated to 3.6% in September from 3.2% in August, according to a Reuters poll.