Euro zone bonds set for worst weekly selloff since March as energy prices soar

German 2-year bond yields rose another 3 basis points on Friday to 3.208%, their highest since October 2023, and up nearly 23 bps this week, the most since the first week of the war in early March.

Two-year yields on G7 debt have risen by nearly a quarter point this week on average, the most since that same week, while 10-year G7 yields have risen nearly 20 bps, led by a 25-bp increase in French yields. U.S. 10-year Treasury yields, meanwhile, are about to hit 5% for the first time since October 2023, a high previously hit in 2007.

Benchmark 10-year Bund yields, which have risen 17 bps this week, were last up 1 bp on the day at 3.5087%.

ECB President Christine Lagarde said Thursday's rate hike was a "no-brainer", and warned that the return of inflation to its 2% target, now seen at the end of 2027, could be delayed even further.

The inflation outlook has deteriorated so much, sources close to the discussion said, that further policy tightening was now likely and could be on the table as soon as October 29.