Euro zone yields edge up as investors watch Hormuz, await US data

Euro zone government bond yields edged higher on Monday as investors monitored prospects for the reopening of the Strait of Hormuz and awaited U.S. inflation data later this week.

Borrowing costs posted the biggest weekly fall since June on Friday as hopes of an Iran peace deal and weak U.S. data tempered market expectations for central banks’ monetary tightening.

Investors remained cautious about the prospects for a Hormuz deal after Iran reiterated that the United States must meet additional conditions, including compensation and the lifting of sanctions and military threats.

Money markets priced in the European Central Bank deposit rate to 2.72% in March 2027 from the current 2.25%.

Weak July jobs data on Friday led markets to scale back expectations of a Fed rate hike next month, though economists still see a case for tighter policy. "A benign CPI could help ease fears about Fed Chair Kevin Warsh turning the central bank overly dovish, which should also bring longer rates lower too," Michiel Tukker, rate strategist at ING, said. U.S. inflation data is due on Wednesday.