Euro zone yields fall as oil retreats on Hormuz reopening hopes
TLT•Benchmark German 10-year yield falls
German 10-year government bond yields, the benchmark for the euro zone, were last down 1.3 bps on the day to 3.1915%, also having hit their lowest level since August 14.
Euro zone yields ease as oil prices fall
Euro zone bond yields pulled back for the second consecutive day on Wednesday as oil prices fell on fresh hopes that the Strait of Hormuz could reopen and traders weighed the path ahead for European Central Bank interest rate policy.
Sources told Reuters that ECB policymakers are ready to raise interest rates at their next meeting in September to contain the side-effects of the Iran war, but they have little appetite to signal further tightening after that.
Hormuz talks lift hopes and crude retreats
Elsewhere, Iran said it had restarted talks with neighbour Oman to manage the Strait of Hormuz, reviving optimism about the crucial waterway reopening and energy shipping constraints being lifted. The strait handled one-fifth of global oil and liquefied natural gas shipments before the war began in February, effectively shutting the strait.
Brent crude futures were last 2.1% lower to $86.73 a barrel.
ECB rate expectations and bond market moves
Separately, ECB board member Isabel Schnabel on Wednesday said in a Bloomberg News interview that interest rates must rise further as the Middle East conflict drags on, adding that the strong euro zone economy poses upside risks to inflation.
Money markets were last pointing to around 38 basis points of further tightening from the ECB by the end of the year, down a touch from Tuesday. The probability of a September rate hike was around 93%.
