Euro zone bond selloff resumes on strong activity data, rising oil prices

The yield on Germany's 10-year bond, the benchmark for the euro zone, was last 8 basis points higher at 3.532%. Bond yields move inversely with prices. The selloff was sharper in other countries within the bloc, with France's 10-year yield up 12 bps to 4.613%, its highest since 2008. France has been under particular scrutiny in recent weeks as it heads towards a 2027 election year and grapples with budget risks stemming from its fragmented parliament. The spread between French and German 10-year yields rose to 108 bps, indicating that investors were requiring an even greater premium to hold French bonds over their German peers. Investors were still watching the situation in the Middle East closely, with oil prices rising for their first day in six days. US President Donald Trump warned on Tuesday that he could "annihilate" Iran. He also said his envoys Steve Witkoff and Jared Kushner had held productive talks with mediators of Iran to end the war. Brent crude futures were last up 2.4% to $101.64 a barrel. Traders are watching energy prices especially closely as they consider the possible path ahead for European Central Bank interest rate policy. The ECB has so far raised rates twice this year in an effort to contain energy-price-driven inflationary pressures. Bundesbank President Joachim Nagel late on Tuesday said that oil prices were becoming an increasingly important indicator for ECB policymakers in setting interest rates. He also kept the door open to further interest rate hikes, noting that core inflation is still too high, but added that so far he did not see any significant second-round inflation effects. Traders were last pricing in around 35 bps of additional tightening from the ECB this year, slightly higher than before Wednesday's PMI data was released, but down from around 40 bps on Friday. The yield on the German 2-year bond, which is sensitive to interest rate expectations, was last 7.5 basis points higher, at 3.283%. Euro zone bonds sold off on Wednesday as oil prices rose again and as stronger-than-expected business activity data in both the euro zone and the United States reinforced expectations for higher interest rates. The S&P Global Flash euro zone Composite purchasing managers' index — where readings above 50.0 signal an expansion in activity — jumped to 53.1 in September from August's 52.0, defying expectations in a Reuters poll for a dip to 51.7. Meanwhile, U.S. business activity expanded by the most in five years in September, S&P Global said. "PMI data for Germany, France and the euro zone aggregate was surprisingly strong this morning, especially in the services sector," said René Albrecht, analyst at DZ Bank. "The PMI data certainly played a role (in the bond selloff)," Albrecht added.

Euro zone bond selloff resumes on strong activity data, rising oil prices

German and French yields climb further

Oil prices and ECB policy stay in focus

Euro zone bonds fall as activity data and oil prices rise

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