Eurozone: Eurozone government bond yields rose on Thursday as renewed fighting in the Gulf pushed energy prices higher and strengthened expectations of further European Central Bank (ECB) interest rate increases. Germany’s benchmark 10-year bond yield climbed to 3.13%, its highest level since May 20, while the gap between German and US 10-year borrowing costs narrowed to its smallest level in about a month.
Why Are Eurozone Bond Yields Increasing?
Investors are pricing in the inflationary impact of rising oil and gas prices following renewed military tensions between the United States and Iran. Markets now see around a 90% probability that the ECB will raise interest rates again at its September meeting, with expectations of a further rate hike before the end of the year.
Why Has the Germany-US Borrowing Cost Gap Narrowed?
While eurozone bond yields have risen sharply, US Treasury yields have remained relatively stable after weaker-than-expected US consumer and producer inflation data reduced expectations of near-term Federal Reserve rate hikes. Analysts say the United States is less exposed to Gulf energy supplies than Europe, helping keep US borrowing costs in check despite escalating geopolitical tensions.