European Bond Sell-Off Deepens Amid Rising Inflation and Hawkish Rate Bets

The European bond sell-off deepened in early September as investors digested fresh inflation data, which strengthened the case for another ECB rate hike this month.

Germany's 10-year Bund yield touched its highest level since April 2011 at 3.36%, while French yields reached their highest since November 2008, with Italian and Spanish yields also climbing to near three-year highs.

The acceleration of eurozone inflation to 3.3% in August, driven by surging energy prices, has markets pricing the ECB's deposit rate at around 2.70% by December, implying an 80% chance of a second hike following an expected September move.

ECB policymakers Olli Rehn and Martin Kocher warned that prolonged conflict and rising inflation risks could require further tightening, while hawkish comments from Fed Chair Warsh prompted markets to price in a 66% probability of a September Fed hike.