German Yields Soar to Multi-Year Highs Amid Warsh's Hawkish Tone

German government bond yields soared to multi-year highs after Federal Reserve Chair Kevin Warsh expressed his concerns about inflation, indicating that central bankers still have work to do to curb it.

The sharp selloff in U.S. Treasuries led to a surge in long-end borrowing costs across the Atlantic, with 10-year German yields reaching 2.898%, its highest level since July 2024. Meanwhile, 30-year bond yields advanced to 3.2903%, touching its highest level since 2011.

The increase in yields reflects a broader re-pricing of global interest rate curves, as investors demand higher term premia to hold duration paper amid persistent inflation and heavy sovereign issuance schedules. As a result, money markets lifted the probability of a 25-basis-point U.S. rate hike in September to near 60%, from roughly 35% earlier last week.

The hawkish shift in U.S. rate expectations immediately spilled over into European debt markets, undercutting demand for core European sovereign debt and pushing yields higher across all tenors. With the release of Euro zone inflation data later this week expected to show persistent underlying price pressures, traders are bracing themselves for another 25-basis-point rate hike from the European Central Bank when its Governing Council meets on Sept. 10.