Euro zone yields hit multi-year highs, EU borrowing costs jump

France's government debt came under renewed pressure, reflecting investor nerves about next year's election and upcoming battles over the country's budget deficit. The gap between French and German 10-year yields DE10FR10=RR, a reflection of the risk premium attached to French debt, rose to its highest since 2012 at more than 98 bps. The EU sold €5 billion ($5.8 billion) of new 30-year bonds via a syndicate of banks on Tuesday at a yield of 4.541%, according to a lead manager memo seen by Reuters. That would be the highest yield paid on any bond since the EU began large-scale borrowing to support economies during the COVID-19 pandemic more than six years ago, according to European Commission data. It is up sharply from a yield of 4.214% paid during a tap of a 30-year bond in May. The key event for markets this week is the Fed decision on Wednesday. Traders now expect a rate hike after inflation remained elevated in August and as the Iran conflict shows few signs of ending. Shorter-dated euro zone bonds, which reflect bets on the European Central Bank rate outlook, slipped back on Tuesday but remained close to the previous day's highs. Germany's 2-year bond yield DE2YT=RR was down 2 bps at 3.25%, after rising above 3.31% on Monday, the highest in three years. The ECB raised interest rates last week to try to stop inflation spreading through the economy, and money markets are pricing in another hike this year as well as two or more next year. Benchmark euro zone borrowing costs rose to their highest in 17 years on Tuesday, with a weeks-long selloff gathering new momentum as conflict in the Middle East pushed up oil prices and U.S. yields surged. The impact of rising yields was seen in a sale of debt by the European Union, which faced its highest borrowing costs since it became a major issuer in 2020 on Tuesday. Germany's 10-year bond yield DE10YT=RR rose more than 4 basis points to 3.572%, its highest since 2011, before slipping back to stand 1 bp higher. Yields rise as prices fall. Longer-dated bonds, which reflect expectations about inflation, the economy and public debt, fell most sharply. France's 30-year yield FR30YT=RR hit its highest since 2002 near 5.2% and Germany's equivalent yield DE30YT=RR touched a 15-year peak above 3.9%. Bond yields, which determine the cost of new borrowing, have hit multi-year or even multi-decade highs around the world in recent weeks. Rising energy prices have caused traders to ramp up bets on rate hikes, while worries about government debt levels and corporate bond issuance to fund AI have added to the pressure on bond markets. U.S. Treasury yields rose sharply on Tuesday as investors braced for a Federal Reserve rate hike, with the benchmark 10-year borrowing cost hitting its highest since 2007 at 5.041%. "The U.S. is leading the way and we believe that short-term expectations of the Fed are the main driver for the longer maturities as well," said Marcus Widen, an economist at SEB. "The rise in interest rates is directly linked to the deteriorating situation in energy prices." Advances by Yemen's Houthis and drone attacks that closed Saudi Arabia's East-West Pipeline, a key export route that bypassed the now-treacherous Strait of Hormuz, pushed up oil prices this week. Brent crude LCOc1 was last trading 1.5% higher at $107 a barrel after the Houthis launched new attacks and Gulf Arab states postponed planned talks with Iran over the war.

Euro zone yields hit multi-year highs, EU borrowing costs jump

French debt under renewed pressure

EU debt sale prices in at highest yield since 2020

Euro zone borrowing costs climb to multi-year highs

U.S. yields, oil prices and rate-hike bets add pressure

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