Euro zone bond yields inch lower as inflation, fiscal worries remain in focus

Money markets were last pricing in at least one more interest rate hike from the European Central Bank by year-end, with chances of a policy increase in September at over 90%.

The yield on Germany's 2-year bond DE2YT=RR, which is more sensitive to interest rate expectations, was 1.2 bps lower to 2.8233%.

Euro zone government bond yields were a touch lower on Friday after a week dominated by stress in global bond markets that even intervention by the U.S. Treasury Department appeared unable to curb.

The surprise intervention on Wednesday brought barely a day of relief from the rout, with yields on U.S. Treasuries ticking higher even as U.S. Treasury Secretary Scott Bessent said he could further increase the government's repurchases of Treasuries, and floated the idea of fiscal consolidation.

Government bond yields around the world rose this week as worries about the inflation outlook and potential higher fiscal spending took hold.

Fiscal risk worries are, however, more restrained in the euro zone than for example in the U.S., where debt as a share of GDP is much higher. That has left long-dated euro zone yields dealing with less upward pressure than their U.S. counterparts.

The yield on Germany's 10-year bond DE10YT=RR, the benchmark for the euro zone, was 1 basis point lower on the day at 3.2445% after hitting a fresh 15-year high earlier in the week. It was on track to rise around 5 basis points across the week, its second consecutive weekly climb.

Germany's 30-year bond yield DE30YT=RR was last steady at 3.7572%.

Elsewhere, markets were also still tracking developments in the Middle East and, by extension, energy prices. A stalemate between the U.S. and Iran has sent oil prices higher again, with Brent crude futures last a touch lower on the day at $93.32 a barrel, but on track for their second consecutive weekly rise.