European Bond Yields Soar Amid Oil Price Surge
German long-term bond yields have reached their highest levels in over 15 years. The yield on Germany's 10-year bond was up 5 basis points to 3.3233%, a level not seen since May 2011.
The rise in German yields comes as oil prices continue to climb, fueled by rising tensions between the US and Iran. Natural gas prices have also surged, reaching their highest level since March at €70.70. This has contributed to higher inflation expectations in the euro zone.
Market participants are closely monitoring bond supply in both Germany and France, as these countries ramp up spending on infrastructure and defense. Investors are watching for signs that these governments can control their public finances amid growing geopolitical tensions.
Rainer Guntermann, a rate strategist at Commerzbank, noted that German Bunds may struggle to defy US Treasury headwinds but could still outperform as the market prepares for an upcoming European Central Bank (ECB) rate hike. Traders are pricing the ECB's deposit rate at about 2.70% by December, implying a strong likelihood of a second rate increase after one expected in September.
The French short-dated yield also reached its highest level since summer 2024 at 3.1202%, while yields on Italian 10-year and 30-year notes hit their highest levels since June 2024 and November 2023, respectively.