Euro zone government bond yields reached their highest levels in nearly a month, with Germany's 10-year government bond yield climbing 5 basis points to 3.034%, its highest since July 11. This surge was attributed to a sharp jump in oil prices, specifically Brent crude rising around 3% to $76.50 per barrel, following the US decision to revoke Iran's oil export waiver and renewed military strikes between the two nations. The increase in energy costs fueled inflation concerns, leading traders to raise expectations for additional European Central Bank (ECB) tightening.
Money markets are now pricing in approximately 31 basis points of rate hikes by the end of the year, an increase from about 25 basis points just a day earlier, with some analysts forecasting at least one potential rate hike as early as September. Germany's two-year government bond yield, sensitive to ECB policy changes, also rose 5 basis points to 2.637%, reaching its highest level since June 22. This marks a dramatic turn from mid-June, when a framework agreement between the US and Iran had caused oil prices to retreat significantly from an April peak of $126 per barrel.
The global impact was broad, with US 10-year Treasury yields advancing 3 basis points to 4.58% and Britain's 10-year yield rising 9 basis points to 4.94%. The renewed hostilities in the Persian Gulf, following President Trump's statement that the ceasefire with Iran may be over, lifted West Texas Intermediate crude by 4.6% to $73.66 a barrel, further stoking inflation worries and increasing bets on Federal Reserve rate hikes by October.
