Euro zone bond selloff pauses as energy prices ease

"Bund yields get more sensitive to changes in natural gas prices as gas prices increase," said Commerzbank rates strategist Erik Liem.

Front-month European benchmark natural gas prices closed at their highest level since January 2023 on Wednesday, but were slightly lower on Thursday after U.S. President Donald Trump said the renewed military campaign in Iran would not last long.

Brent crude futures were also down over 1% after hitting a near six-week high on Wednesday.

Rising energy prices have prompted traders to raise their expectations for tighter policy from global central banks, including the European Central Bank.

Money market traders are fully pricing in a quarter-point rate hike to 2.5% from the ECB when it announces policy a week from Thursday. Markets have also moved to almost fully price in a 3% deposit rate by June of next year, implying two further rate hikes by the middle of 2027.

Germany's 2-year yield, which is sensitive to changes in interest rate expectations, was down 1.5 bps on Thursday to 2.966%, after hitting its highest in more than two years on Wednesday at 3.0115%.

LONDON, Sept. 3 (Reuters) - Euro zone government bonds were set on Thursday to snap a six-day falling streak, pushing yields away from multi-year highs as benchmark oil and gas prices eased, alleviating some inflation worries.

Bond yields have surged in recent weeks on heightened worries about energy-induced inflation and rising interest rates, along with anxiety about fiscal sustainability in some countries, including France, the United States, Japan and the UK.

Germany's 10-year Bund yield, the benchmark for the euro zone, was down 1.5 basis points at 3.364%, just below the 15-year high of 3.3951% reached on Wednesday.