Europe's Stocks Plunge Amid Rising Bond Yields and Inflation Fears

European shares fell on Tuesday due to rising government bond yields and inflation data that reinforced expectations of interest rate hikes. The pan-European STOXX 600 index slipped 0.6% to a more than one-month low of 647.08, with Britain's FTSE 100 easing 0.3%, Germany's DAX slipping 1.1%, and France's CAC 40 falling 0.4%. Euro zone government bond yields climbed to fresh multi-year highs as Europe joined a global bond selloff.

The data showed inflation rose above 3% in August, driven by higher energy costs, which strengthened expectations that the European Central Bank will raise interest rates next week. Traders expect a 25-basis-point rate hike, according to LSEG data. Germany's 30-year government bond yield hit a 15-year high, while France's 30-year yield climbed to its highest level since 2008.

Chris Beauchamp, chief market analyst at IG, said, 'After a long focus on equities and the income they provide, there is now a much more compelling case to look at bonds for retail investors to provide diversification, especially as equities begin to dread the prospect of rate hikes around the globe and the return of inflationary pressures.'