Eurozone Bond Yields Climb to Multi-Year Highs on Inflation and Oil Worries

Eurozone government bond yields extended their upward march for a sixth consecutive session on Wednesday, as a global sell-off in debt markets showed no signs of easing. The persistent rise in borrowing costs is being driven by renewed Middle East tensions, which have pushed crude oil prices higher and reinforced investor concerns over inflation and swelling government debt.

The yield on Germany's 10-year government bond, the benchmark for the eurozone, touched its highest level since April 2011. It was last trading up 3.8 basis points on the day at 3.3763%. Meanwhile, the yield on Germany's 2-year bond, which is more sensitive to interest rate expectations, rose 4 basis points to 2.9861%, hovering near its highest point since June 2024.

Fresh data released on Tuesday showed that eurozone inflation accelerated to 3.3% in August, up from 2.9% in July. The spike was almost entirely attributed to higher energy costs, as both crude oil and natural gas prices climbed and refiners increased their margins.

Oil prices continued their ascent on Wednesday after the United States and Iran engaged in their most significant exchange of fire in weeks. Brent crude futures were up 0.9% on the day, trading at $95.45 a barrel.

The sustained rise in yields reflects a broader market rout that is pushing borrowing costs to multi-decade highs globally. In response to the inflationary pressures, money markets are now pricing in a near 100% probability that the European Central Bank will hike interest rates at its meeting later this month, with a strong chance of another increase before the year ends.