Eurozone bond yields held near multi-year highs on Friday as crude oil’s push past $100 a barrel revived fears of prolonged ECB tightening and clouded the euro-area growth outlook. July business surveys came in firmer than forecast, yet climbing energy costs left any recovery on shaky ground.
Government bond yields across the euro area lingered near multi-year highs as crude oil surged past $100 a barrel, reinforcing fears of prolonged monetary tightening. The rate-sensitive German two-year yield eased to 2.85%, holding around its highest level since mid-2024. Its benchmark 10-year Bund counterpart traded near 3.19%, keeping borrowing costs near the highest since 2011.
Oil surge revives inflation fears
The oil rally rekindled inflation concerns across the bloc. Crude jumped over 7% after threats of major military strikes against Middle East transit routes and the announcement of new U.S. trade tariffs on European goods. The spike landed a day after the ECB left its deposit facility rate unchanged at 2.25%, warning that the full inflationary impact of the energy shock has yet to play out.
Business surveys beat expectations
Against that backdrop, July’s flash readings surprised to the upside. Germany’s manufacturing PMI climbed to 52.2 versus 50.5 expected, lifting the composite index back into growth territory at 51.2. According to S&P Global Market Intelligence’s Phil Smith, “the path to a sustainable recovery still seems very much uncertain” given escalating regional hostilities.
In France, services activity reached a seven-month high at 49.8 against 47.5 expected, though the composite stayed marginally in contraction at 49.6. French services demand rose for the first time since November, bringing some stabilisation to the wider economy.
Elevated yields weigh on growth
Higher borrowing costs still act as a drag even as activity steadies. Italian 10-year yields held near 4.02%, keeping the spread over German Bunds near 81 basis points as investors demanded a premium for southern European debt. With 10-year borrowing costs near 15-year peaks, governments rolling over debt face steeper interest bills, an automatic drag on the bloc’s expansion.
Sources: Investing.com, investingLive, investingLive
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