Euro zone yields jump to multi-year highs as bond selloff picks up pace

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, a trend that only looks set to continue." Rising energy prices stemming from the U.S.-Israeli war with Iran have caused traders to increase their bets on rate hikes, while worries about high levels of government debt, large amounts of corporate bond issuance to fund AI investment, and resilient growth have all helped drive up yields. 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 2% higher at $108 a barrel after the Houthis launched new attacks and Gulf Arab states postponed planned talks with Iran over the war. European natural gas prices TFMBMc1 hit their highest since late 2022 on Monday, adding to the fears about inflation. Rising bets that the Fed will raise interest rates on Wednesday have pushed up Treasury yields and spilled over into other markets, after inflation remained elevated in August and as the Iran conflict shows few signs of ending. The 10-year U.S. Treasury yield is the most widely watched rate in global markets and sets the tone for borrowing costs across the American economy and around the world. Many investors view 5% as a worrisome level that could slow growth and knock stock markets. Shorter-dated euro zone bonds, which reflect bets on the European Central Bank rate outlook, slipped back on Tuesday but remained close to their highest since the rate-hiking cycle of 2023. Germany's 2-year bond yield DE2YT=RR was down 4 bps at 3.237%, 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. 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, which is more than 5% of gross domestic product. 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. 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. Germany's 10-year bond yield DE10YT=RR rose more than 4 basis points (bps) 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 have hit multi-year or even multi-decade highs around the world in recent weeks.

Euro zone yields jump to multi-year highs as bond selloff picks up pace

U.S. rate bets and energy prices add pressure

ECB outlook and French debt remain under scrutiny

Euro zone borrowing costs rise to multi-year highs

Related News

Yatsen Holding files Form 3 for Co-CFO Wang Li Emily’s beneficial ownership statement

Calumet amends Bank of America-led credit agreement, lifts commitments to $600 million

Taser maker Axon drops after unveiling $1 bln convertible debt deal

"The house" visits the House

Blackrock Silver to join VanEck Junior Gold Miners ETF GDXJ in September rebalance