Euro zone yields nudge lower as bond selloff pauses

Rising energy prices have prompted traders to raise their expectations for tighter policy from global central banks, including the European Central Bank.

Money market traders are fully pricing in a quarter-point rate hike to 2.5% from the ECB when it announces policy in a week's time. Markets have also moved to almost fully price in a 3% deposit rate by June of next year, implying two further rate hikes by the middle of 2027.

Economists polled by Reuters expect the ECB to raise interest rates on September 10 for a second time and then end what would be its shortest hiking campaign in 15 years.

The backdrop for tighter policy has weighed on sovereign bonds across the euro zone, with yields touching multi-year highs not just in Germany but in France FR10YT=RR, the Netherlands NL10YT=RR, Italy IT10YT=RR and Spain ES10YT=RR, among others.