Germany 10Y Bond Yield Hits 15-year High

European government bonds extended their sell-off in early September as investors digested fresh inflation data that strengthened the case for another ECB rate hike this month, with the Iran war continuing to put upward pressure on prices. Germany’s 10-year Bund yield touched 3.36%, its highest since April 2011, while French yields reached their highest since November 2008. Italian and Spanish yields also climbed to near three-year highs. Eurozone inflation accelerated to 3.3% in August, its highest since September 2023 and well above the ECB’s 2% target, driven by surging energy prices. Markets now price the ECB’s deposit rate at around 2.70% by December, implying an 80% chance of a second hike following an expected September move. ECB policymakers Olli Rehn and Martin Kocher warned that prolonged conflict and rising inflation risks could require further tightening. Meanwhile, hawkish comments from Fed Chair Warsh prompted markets to price in a 66% probability of a September Fed hike.

European government bonds extended their sell-off in early September, with Germany’s 10-year Bund yield climbing above 3.3% for the first time since May 2011. French yields rose to their highest level since November 2008, while Dutch yields reached 15-year highs and Italian and Spanish yields climbed to near two- and three-year highs, respectively. The renewed pressure on sovereign debt came as rising oil prices and increasingly hawkish signals from major central banks reinforced expectations for higher interest rates. Markets are now pricing the ECB’s deposit rate at around 2.7% by December, implying roughly an 80% probability of a second rate hike after an expected move as early as September. Meanwhile, Fed Chair Kevin Warsh warned that inflation has not slowed meaningfully and that the Fed still has “work to do,” prompting markets to price in a 66% probability of a September rate hike.

European bond yields hit fresh multi-year highs on the final trading session of August, with Germany’s 10-year Bund yield reaching 3.3% for the first time since May 2011. French yields climbed to their highest since November 2008, while Dutch yields hit 15-year highs and Italian and Spanish yields rose to more than two- and three-year highs, respectively, as rising oil prices and hawkish central-bank signals fueled expectations for higher rates. Brent crude rose after the US said it had attacked an Iranian island in the Strait of Hormuz, while Tehran said it had retaliated by targeting US assets in the region. Markets are now pricing the ECB’s deposit rate at around 2.7% by December, implying roughly an 80% probability of a second rate hike following an expected move as early as September. Meanwhile, Fed Chair Kevin Warsh warned that inflation has not slowed meaningfully and that the Fed still has “work to do,” prompting markets to price in a 60% chance of a September rate hike.