European Bonds Slump as Oil Prices Rise and Fed Decision Looms

The euro zone government bonds snapped their three-day rally on Wednesday due to rising oil prices and an upcoming U.S. Federal Reserve rates decision.

The price of the 10-year German Bund, a benchmark for European bonds, dropped as its yield rose by 1 basis point to 3.12%. This is higher than its recent low of 3.12% reached after a 15-year high of 3.212% on July 23.

The conflict in the Gulf has had a significant impact on European bonds, with prices largely influenced by oil and gas prices since late February. Policymakers are closely watching whether higher energy prices will lead to broader inflation and require them to raise interest rates more aggressively.

On Wednesday, Brent crude rose 3.5% to $87 a barrel, further increasing European yields. The U.S. Federal Reserve's upcoming decision is also keeping investors on edge, with markets expecting the Fed to remain on hold but seeing a roughly 30% chance of a hike.