Europe's Gas Crunch Meets Bond Market Reality Check

Europe's natural gas market is sending warning signals as prices for delivery in autumn have reached three-and-a-half-year highs, while inventories are leaner than usual.

The gas market is experiencing backwardation, a pattern where current prices for delivery are higher than those for later in the winter. This discourages stockpiling because buyers pay more today to store gas that may be cheaper later.

This situation has been linked by Reuters columnist Tom Westbrook to supply disruption out of Qatar following the Iran war, leaving Europe more exposed if demand jumps.

In another development, bond markets are demanding higher compensation for holding long-dated debt. The 10-year US Treasury term premium has risen from about 26 basis points in January 2025 to over 80 basis points in June, with nominal 10-year yields increasing more than market-based inflation expectations.

This repricing has pushed German bund futures to 15-year lows and French OAT futures to their lowest since launching in 2012. The eurozone's next inflation data release and the European Central Bank's decision are being closely watched.