Euro zone government bond yields are on track for their worst weekly performance since March, extending a five-week decline after the European Central Bank raised its deposit facility rate on Thursday. Surging oil prices and a hot U.S. producer inflation print added further pressure, with markets now watching Friday's U.S. consumer price data for the week's final move.
Bund yield nears 2011 highs
Germany's 10-year Bund yield traded up at 3.505%, firmly near its highest levels since 2011. The euro zone benchmark capped a fifth straight week of rising yields as traders priced in persistent, energy-driven cost pressures and structural fiscal headwinds.
Long-duration paper across the continent faced similar strain. France's 30-year sovereign bond yield surged to its highest level since 2003, driven by a combination of regional rate hikes and persistent concerns over Paris's structural deficit.
Short-dated debt takes the hardest hit
The sell-off accelerated on Thursday, when the ECB raised its deposit facility rate by 25 basis points to 2.50%. The policy-sensitive two-year yield then suffered its sharpest one-day sell-off in two months, ticking to 3.181%, as fixed-income desks dismantled remaining bets on an autumn policy pause.
Oil added to the pressure. Brent crude surged past $109 a barrel on Middle East supply restrictions and Houthi activity in the Red Sea, and money markets are now pricing a high probability of a third ECB rate increase before year-end. As a result, traders are adjusting to the prospect that European borrowing costs stay in restrictive territory well into late 2026 to contain second-round price effects.
U.S. inflation data looms over the week's close
European debt markets are also looking across the Atlantic for the week's final major driver. The U.S. Bureau of Labor Statistics is due to publish its August Consumer Price Index reading, after Thursday's Producer Price Index report showed wholesale inflation accelerating to 5.4%.
A hot U.S. CPI print would solidify bets on a Federal Reserve rate hike at its Sept. 15-16 meeting, putting further upward pressure on global benchmark yields heading into the weekend.
Source: Investing.com
Trading involves risk.
Risk Disclaimer
