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

Euro zone government bond yields were little changed on Friday after a week dominated by stress in global bond markets. The yield on Germany's 10-year bond, the benchmark for the euro zone, was little changed on the day at 3.2572% after hitting a fresh 15-year high earlier in the week. It was on track to rise around 6 basis points across the week, its second consecutive weekly climb. Germany's 30-year bond yield was last steady at 3.7669%. 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 higher on the day at $93.88 a barrel, and on track for their second consecutive weekly rise. Iran said on Friday that its response to any new U.S. threats would be "devastating" after Washington pledged to impose the toughest financial penalties in history with the aim of toppling the Iranian leadership. Worries about the economic impact of the conflict have been widespread since it broke out almost six months ago at the end of February, with Europe seen as particularly vulnerable due to its reliance on energy imports. The calm in Europe was welcome after a week of market-rattling developments across the Atlantic. U.S. long-term bonds opened the week climbing toward a 19-year high in yields, raising the prospect of higher borrowing costs for consumers and businesses and an increasing interest burden for the federal government. The U.S. Treasury's surprise intervention on Wednesday brought barely a day of relief from the rout, with yields on U.S. Treasuries ticking higher even as Treasury Secretary Scott Bessent said he could further increase the government's repurchases of Treasuries, and floated the idea of fiscal consolidation. U.S. yields were rising again on Friday, leaving them up 9 basis points for the week at the 2-year tenor that is sensitive to Federal Reserve rate increase expectations and 2 basis points at 30 years. 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 region has, however, proved unexpectedly resilient, which was underlined again by preliminary August business surveys on Friday. They showed that euro zone business activity this month has been growing at its quickest rate since November, flagging stronger new orders, particularly in manufacturing, and renewed export growth, as well as easing price pressures. The data "suggests that the euro-zone economy is continuing to shrug off the effects of higher energy prices," Harry Chambers, assistant economist at Capital Economics, said. Money markets, however, are still 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, which is more sensitive to interest rate expectations, was little changed at 2.8361%.

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

Euro zone yields little changed after volatile week

Middle East tensions and oil prices remain a backdrop

U.S. Treasury moves kept global bond markets in focus

Business surveys show resilience in the euro zone economy

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