Eurozone bond selloff deepens as yields hit multi-year highs

Pressure on euro zone government bonds intensified on Wednesday, with yields climbing to multi-year highs for a second consecutive session. The selloff was driven by persistent worries over inflation, elevated public spending, and the sustainability of sovereign debt.

Oil prices extended their advance, adding to concerns that central banks may be forced to keep interest rates higher for longer. Brent crude rose more than 1% to $92.38 a barrel, its highest level since late July. Geopolitical tensions in the Middle East, including conflicting statements over the Strait of Hormuz, have contributed to the upward pressure on energy prices.

Germany's 10-year yield touched a fresh 15-year high of 3.275%, while France's 10-year yield climbed above 4.13%, its highest since 2008. Italian 10-year yields also rose to their highest level since March, above 4.1%.

Longer-dated bonds were at the center of the selloff, reflecting concerns about government borrowing and economic growth rather than central bank policy. Germany's 30-year yield reached its highest since 2011 at 3.787%, and France's 30-year yield hit its highest since 2008 at 4.92%.

"Investors are very concerned regarding debt sustainability of sovereigns around the globe, especially developed markets," said Michael Weidner, co-head of global fixed income at Lazard Asset Management. He also noted that thinner market liquidity during the summer could be exacerbating the moves.

A German auction of 10-year debt on Wednesday saw softer-than-expected demand, with only €3.8 billion sold against an anticipated €6 billion. Money markets are now pricing in around 45 basis points of further European Central Bank tightening this year, up from 40 basis points on Friday.

Meanwhile, relative calm in the U.S. Treasury market limited the extent of the global selloff, with the 10-year U.S. Treasury yield down just under 1 basis point at 4.7%.