FX.co ★ Eurozone Bond Yields Rise as ECB Rate Hike Bets Grow

Eurozone government bond yields continued to climb, with global debt markets on track for their worst weekly selloff since the onset of the Iran war, as surging energy prices stoke inflation fears. Germany’s 10-year Bund yield rose above 3.5%, its highest level since August 2009, while Italian yields reached their strongest levels since late 2023 and French yields hit an 18-year high. On Thursday, the European Central Bank raised interest rates by 25 basis points and warned that inflation could remain well above its 2% target for a prolonged period. President Christine Lagarde described the move as a “no-brainer” and cautioned that the return to target, currently projected for the end of 2027, could be pushed back even further. The inflation outlook has worsened so markedly that additional monetary tightening is now seen as increasingly probable, according to people familiar with the discussions, with another rate increase potentially coming as soon as October. Markets are currently pricing in three further ECB hikes by March, followed by an additional increase by June.