Euro Zone Yields Reach Multi-Year Highs as Inflation Data Boosts Rate Hike Expectations

The euro zone government bond yields have reached multi-year highs on Tuesday as the global bond selloff continues. The European Central Bank's decision to increase interest rates in September is becoming more likely, driven by hot inflation data.

Germany's 10-year yield, the benchmark for the euro zone, hit a 15-year high of 3.36% and was last up 1 basis point at 3.33%. The German 30-year yields reached their highest since 2011 at 3.8458%, down 0.5 bps.

The jump in headline inflation to 3.3% in August from 2.9% in July, driven by higher energy costs, makes a September rate hike easier for the ECB to sell, according to Bert Colijn, chief economist for the Netherlands at ING.

However, the benign core inflation rate remains modest, offering some reassurance to policymakers that the energy price surge is not yet setting off rapid inflation and forcing the ECB into more aggressive action.