Euro zone bonds join global selloff, long-end yields at multi-year highs

Fears that a prolonged Iran war could lead governments to ramp up spending to cushion the economic impact of energy supply disruptions from the Middle East have again reignited concerns about fiscal stability. The deteriorating geopolitical backdrop is also expected to drive higher military expenditure, while volatile weather in Europe is adding to the strain on public finances.

Concerns over the fiscal outlook tend to weigh more heavily on longer-dated bonds, where prices are more sensitive to shifts in government borrowing and debt sustainability expectations.

"Markets are clearly demanding more compensation for locking up capital for very long periods," said Kjersti Haugland, chief economist at DNB Carnegie.

"Future financing needs, and therefore also the supply of government bonds, are substantial, reflecting ageing, rearmament and a greater need for supply security in a world marked by rising geopolitical conflict and unrest."