European Shares Set for First Monthly Decline in Six Amid Bond Yield Surge

European shares are on track to post their first monthly decline in six, as surging global bond yields reduce the appeal of risk assets. The pan-European STOXX 600 index has risen by 0.4% so far today but is down 1.7% for the month and nearly flat for the third quarter.

The sharp increase in bond yields this month has been driven by a combination of factors, including higher interest rates set by major central banks like the Federal Reserve and the European Central Bank, as well as the ongoing Iran war and deteriorating government finances. Energy shares have been hit particularly hard, falling by 1% despite oil prices rising nearly 14% for the month.

The 10-year German bund yield, a key benchmark for the euro zone, has eased slightly but remains near its 2009 high. Investors are closely watching bond yields and their impact on risk assets, according to IG Group's Chris Beauchamp. The UK's economy grew faster than expected in the second quarter, while France's inflation reading came in higher than forecast.