Eurozone Bond Yields Climb as Oil Rally Deepens on Hormuz Stalemate

Eurozone government bond yields moved higher on Tuesday, tracking a fresh uptick in oil prices as hopes for an imminent reopening of the Strait of Hormuz continued to fade.

Germany's 10-year yield, the benchmark for the bloc, rose 2 basis points to 3.198%, adding to a 5-basis-point gain on Monday. The move mirrored a similar rise in the 2-year yield, which is more sensitive to European Central Bank policy expectations, climbing 2 basis points to 2.809%.

The bond market moves came as Brent crude edged up 0.5% to $88.20 per barrel, following a 5% surge on Monday. The rally was driven by comments from US President Donald Trump, who said Iran should pay compensation for past conflicts, a position that appears to complicate Tehran's demands for an end to sanctions and reparations before it agrees to reopen the key waterway.

Iran had earlier indicated it was close to a final agreement with Oman on new shipping lanes through the Strait, but reiterated that US conditions, including compensation, must be met first. This has left traders bracing for a prolonged closure.

"We are back to the situation where there is no war ongoing, but the Strait of Hormuz remains closed," said Mohit Kumar, a senior European economist at Jefferies. "The longer the Strait is closed, more inventories will be depleted and greater would be the impact on oil prices."

Money markets have responded by pricing in 41 basis points of further ECB tightening this year, up from 37 basis points late on Friday. Italian and French 10-year yields also rose by 3 basis points each.

Investors are now turning their attention to Wednesday's US consumer price index report, which could influence the Federal Reserve's rate path and have knock-on effects for global bond markets.