Eurozone government bond yields moved higher on Monday as rising oil prices and renewed geopolitical tensions strengthened expectations that the European Central Bank (ECB) will maintain a restrictive monetary policy stance for longer.
Borrowing costs increased across both short- and long-term maturities, extending the upward trend seen earlier this month as investors reassessed the inflation outlook.
Germany’s 10-year Bund yield, the benchmark for the euro area, climbed to around 3.14%, remaining close to its highest level since late May.
Shorter-dated bonds also came under pressure, with the yield on the rate-sensitive two-year German Bund rising to approximately 2.79%, reflecting growing expectations that interest rates could remain elevated for an extended period.
The latest move in bond markets comes as the ongoing conflict involving the United States and Iran continues to fuel concerns over global energy supplies. Brent crude gained a further 2.2% on Monday, increasing fears that higher energy costs could feed through into consumer prices across the eurozone.
Investors are increasingly concerned that a sustained rise in oil prices could complicate the ECB’s efforts to bring inflation back towards its target, prompting markets to factor in a more cautious approach to future rate cuts.
Attention is now turning to Thursday’s ECB policy meeting. While the central bank is widely expected to leave its deposit facility rate unchanged at 2.25% following June’s 25-basis-point increase, investors will closely watch President Christine Lagarde’s comments for guidance on the policy outlook.
Market participants expect the ECB to reiterate its data-dependent approach while signalling that further policy tightening remains possible if inflationary pressures, particularly those linked to energy prices, continue to build.
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