Euro zone bond yields ease as oil prices dip, remain near multi-year highs

Higher energy prices have prompted markets to price in increasingly tighter policy from the European Central Bank, with tighter supplies of refined fuels and dwindling gas inventories threatening to send inflation even higher. Markets are almost fully pricing in a quarter-point rate hike to 2.5% from the ECB next month. Futures also imply a roughly 25% chance that the ECB's deposit rate reaches 3% by March 2027 and about a 60% chance by September. Germany's 2-year yield DE2YT=RR, which is sensitive to changes in ECB policy expectations, was down 1.5 bps to 2.823%. "We'll need to see lower energy prices which will then feed into policy rate expectations," said SEB's Hiljanen. "That is the key channel for yields." Euro zone government bond yields edged lower on Monday, helped by lower oil prices, but remained close to multi-year highs hit last week as investors awaited details of threatened U.S. sanctions on [Iran](https://www.reuters.com/world/iran/). Germany's 10-year yield DE10YT=RR, the euro zone's benchmark, was down 1 basis point (bp) at 3.246%. It rose to 3.275% last week, its highest level in more than 15 years, as concerns about inflation and the fiscal outlook gripped markets. Bond yields move inversely to prices. Investors were also closely watching moves at the longer end of the yield curve with yields touching multi-decade highs across the globe last week, in part due to worries about fiscal sustainability. Germany's 30-year yield DE30YT=RR was down half a basis point on Monday to 3.756%, just below its highest level in more than 15 years of 3.787% reached last week. Other countries in the euro zone faced similar moves with France's 30-year OAT yield FR30YT=RR touching its highest level since September 2008 last week. It was last down 2 bps on the day to 4.894%. "In Europe, long-end OATs are particularly exposed given looming budgetary and election uncertainty," said Commerzbank rates strategist Hauke Siemssen. U.S. 30-year bond yields US30YT=RR were down 3 basis points at 5.248%, below last week's 19-year high of 5.337% that prompted the U.S. Treasury to expand purchases of older long-dated bonds. "I have a difficult time seeing yields coming down in any meaningful way unless we have a more sustainable solution to the Iran conflict, and that is not in sight for the time being," said Jussi Hiljanen, chief strategist, U.S. and euro zone rates at SEB. Brent crude oil LCOc1 prices were down around 1.5% on Monday to $92.91, providing some relief to bonds after oil rose by more than 6.5% last week. But the forecast appears less rosy ahead of a press conference by U.S. Treasury Secretary Scott Bessent, who plans to announce sanctions on Iran that aim to inflict economic pain and could further disrupt energy supplies from the Middle East.

Euro zone bond yields ease as oil prices dip, remain near multi-year highs

Markets price in more ECB tightening

Euro zone yields edge lower as oil prices retreat

Long-end bond yields remain near multi-decade highs

Oil prices and Iran sanctions keep pressure on rates

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