Eurozone Yields Surge as September Rate Hike Bets Cement

Eurozone government bond yields surged to fresh multi-year highs on Tuesday as inflation data solidified expectations of a European Central Bank rate hike in September.

The benchmark German 10-year yield rose nearly 3 basis points, hitting a new 15-year high of 3.36%, just shy of that level. Super-long German 30-year yields also reached their highest since 2011, increasing by 3 bps to 3.845%.

The global bond selloff was fueled by rising energy costs globally, triggered by the Iran war, which is threatening broader price rises and prompting central banks to raise interest rates.

Japan's 10-year yield hit 3% on Tuesday for the first time in 30 years. Inflation in the eurozone accelerated to 3.3% in August from 2.9% in July, driven primarily by higher energy costs as crude oil and natural gas prices increased.

Bert Colijn, chief economist for the Netherlands at ING, noted that 'the jump in the headline inflation rate makes a September hike easier to sell.' However, the core inflation rate remained benign, which could lead to an interesting debate about subsequent interest rate hikes.