Sovereign Yields Surge Amid Global Debt Sell-Off

Euro zone sovereign bond yields rose sharply, driven by global concern over finances and the Bank of Japan's indications of potential interest rate hikes. German Chancellor Friedrich Merz faces challenges in passing a pensions bill, testing his coalition's stability. Core inflation data from the U.S. could further influence market directions.

Euro zone sovereign bond yields experienced a notable increase at the end of the week, marking one of the largest sell-offs in three months. Investor concerns over government finances continue to mount, with Japanese bonds spearheading a global debt sell-off. This has pushed yields on 30-year Japanese Government Bonds to unprecedented levels.

The Bank of Japan hinted at possible interest rate hikes, propelling long-dated yields upward globally, in a trend known as curve steepening. German bonds followed suit, with 30-year yields rising by 7.4 basis points, while German Chancellor Friedrich Merz deals with internal opposition over a pensions bill, questioning his party management skills.

Market participants are also focusing on U.S. core inflation data, due later Friday, which may steer economic sentiment. Meanwhile, Italy's 10-year yields remained stable, maintaining a premium over Bunds. The European bond market awaits ratings reviews set for later this week, which could further impact yields.

(With inputs from agencies.)