Euro zone government bond yields were broadly unchanged near multi-year highs on Monday as investors awaited a series of central bank policy decisions and monitored higher energy prices linked to developments in the Middle East.
Germany’s benchmark 10-year Bund yield was unchanged at 3.511%, remaining around its highest level since 2011 after yields recorded a fifth consecutive weekly increase.
The policy-sensitive two-year German Schatz yield was also broadly unchanged at 3.197%, close to its highest level since October 2023. The moves followed the European Central Bank’s interest rate increase on Thursday.
Federal Reserve Decision in Focus
Attention is now turning to monetary policy decisions from several major central banks.
Markets were pricing an 86% probability that the US Federal Reserve would raise interest rates by 25 basis points at its 15-16 September meeting. Swap markets were also assigning a high probability to another increase in December following Friday’s US consumer price inflation data.
The US inflation figures briefly pushed the 10-year Treasury yield above 5%.
The Bank of Japan and Bank of England are also scheduled to announce policy decisions later in the week. The Bank of Japan is widely expected to increase its policy rate by 25 basis points to 1.25%.
Brent Crude Trades Near $112
Energy prices remained elevated on Monday, with Brent crude rising another 3% to around $112 a barrel.
The increase followed further military strikes on Saudi infrastructure, including a major oil pipeline, as well as advances by Yemen’s Houthi rebels affecting concerns over Red Sea shipping routes.
A planned meeting in Oman between Iran and Gulf Arab states concerning the reopening of the Strait of Hormuz was also postponed, adding to uncertainty surrounding regional energy supplies.
Italian and French Yields Remain Elevated
Italy’s 10-year government bond yield traded near 4.38%, with the yield spread over German government debt broadly stable ahead of additional autumn sovereign issuance.
France’s 10-year government bond yield held around 4.45%.
French 30-year yields were also near their highest levels since 2003 as markets assessed the country’s projected structural budget deficit.
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