European Stocks Slide as Bond Yields Reach New Highs

European stocks started September on a gloomy note as government bond yields rose to new highs. The pan-European STOXX 600 index fell by 0.2% to its lowest level in over a week, while Britain's FTSE 100 dropped 0.5% and Germany's DAX slipped 0.5%. France's CAC 40 was the only one to gain, rising by 0.2%.

The surge in energy prices has been driven by concerns about supply disruptions following direct attacks between the US and Iran. This, combined with hawkish remarks from Federal Reserve Chair Kevin Warsh, has prompted investors to price in interest rate hikes from major central banks. The European Central Bank is expected to hike rates by 25 basis points as early as next week.

The rise in bond yields saw Germany's 30-year government bond yield reach a fresh 15-year high, while France's 30-year yield touched its highest level since 2008. Euro zone inflation figures for August are due later in the day and could offer clues on the interest rate trajectory. The recent selloff in stocks has shaved 2% off the STOXX 600 index.