Euro zone government bond yields remained near multi-year highs on Wednesday as investors assessed higher energy prices and expectations for an interest rate increase from the European Central Bank at its Thursday policy meeting.
Germany’s benchmark 10-year Bund yield traded around 3.382%, remaining close to the highest level since August 2011 reached during the previous session.
At the shorter end of the yield curve, Germany’s two-year Schatz yield was around 2.984%, near its highest level in two years.
Money markets were pricing in an approximately 25-basis-point increase in ECB interest rates at Thursday’s meeting. Market participants were also assessing the potential implications of higher energy import costs for inflation and the future path of monetary policy.
Energy prices remained a focus for European bond markets. Brent crude traded just below $100 a barrel following an escalation in the Middle East and developments affecting shipping routes in the Persian Gulf.
European natural gas prices were also elevated. Dutch TTF wholesale natural gas futures traded close to their highest levels since 2022 amid delayed liquefied natural gas shipments and concerns surrounding the replenishment of storage inventories ahead of the winter heating season.
The moves followed attacks on Tuesday by Iranian-backed Houthi forces in Yemen against several Saudi Arabian cities.
The developments also included U.S. strikes against multiple Iranian oil tankers and an Iranian missile strike targeting a U.S. military base in Jordan.
Alongside Thursday’s ECB interest rate decision, bond market participants are awaiting U.S. Producer Price Index and Consumer Price Index data scheduled for later in the week.
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