Euro zone bond yields edge lower as oil dips; rates, inflation outlook in focus
TLT•Euro zone bond yields slip as oil eases
Euro zone bond yields nudged lower on Friday, having hit multi-year highs a day earlier, as market participants took a breather and weighed the outlook for interest rates and inflation as oil prices eased back below the $100 mark.
The yield on Germany's 10-year bond, the benchmark for the euro zone, was last down 1.5 basis points (bps) to 3.1965%. It hit a 15-year high in the previous session, rising as high as 3.2118%.
Euro zone bonds have been under pressure — especially given the European economy's vulnerability to imported energy — throughout the week with oil prices rising above $100 per barrel for the first time since May. On Friday, Brent crude futures were last 2.1% lower at $98.59 per barrel, though they were still set for a 12% weekly rise.
Fresh U.S. tariffs add to inflation worries
Elsewhere, news of fresh U.S. tariffs also contributed to inflation worries. The Trump administration on Friday imposed new tariffs of 10% and 12.5% on goods from 60 trading partners, including the European Union, based on allegations of lax enforcement of forced labor bans, just as a temporary 10% global tariff expired.
Energy costs and ECB outlook keep inflation in focus
Energy prices have been pushed higher by fresh hostilities in the Middle East, as well as concerns about a second shipping chokepoint emerging, disrupting global energy flows further. The spike in energy costs prompted fresh inflation worries and led traders to bet on additional policy tightening from the world's central banks.
The European Central Bank left interest rates unchanged on Thursday, as expected, but kept the option for a September increase on the table. Several ECB policymakers on Friday also noted that inflation risks are high and that the central bank may need to raise rates once more, but they all stopped short of calling for an outright hike at the bank's next meeting in September.
