Euro zone yields steady as oil retreats on Hormuz reopening hopes

Euro zone bond yields were broadly steady on Wednesday as oil prices fell on fresh hopes that the Strait of Hormuz could reopen and as 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.

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 39 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 95%.