European Shares Headed for First Monthly Decline in Six Months

European shares are heading towards their first monthly decline in six months due to higher global bond yields that have reduced the appeal of risk assets. The pan-European STOXX 600 index is down 1.7% for the month and nearly flat for the third quarter.

The surge in bond yields has been triggered by a combination of factors, including an energy-price shock from the Iran war, deteriorating government finances, and a glut of issuances that prompted major central banks to raise interest rates or adopt a more hawkish stance. This month has seen the Federal Reserve and the European Central Bank take steps to tighten monetary policy.

Chris Beauchamp, chief market analyst at IG Group, attributes the recent trend in bond yields to the more hawkish stance taken by Fed chief Kevin Warsh during the Jackson Hole meeting in late August, which set the tone for the entire month.