Eurozone Yields Jump on ECB Rate Expectations

The recent Federal Reserve rate hike has sent shockwaves through global bond markets, with eurozone yields climbing in response.

Short-dated eurozone bond yields ticked up after the Fed's move to raise interest rates to 3.75%-4%, with traders now pricing in a higher chance of an ECB hike in October and three quarter-point increases by June next year.

The bigger driver behind market movements is now what traders think the European Central Bank (ECB) will do next, with inflation still running above its 2% target and energy prices remaining a key wild card. Brent crude has dipped over the last two days but remains above $104 a barrel.

This shift in rate expectations has seen Germany's 2-year yield rise to 3.247%, while the 10-year yield nudged up to 3.526%. The short-term government yields act as a public scoreboard for where markets think central-bank rates are headed over the next couple of years.