Eurozone Bond Yields Skyrocket Amidst ECB Rate Hike Anticipation

Eurozone government bond yields neared multi-year highs ahead of the European Central Bank meeting. Traders anticipate two rate hikes by 2026 and a 3% deposit rate by late 2027, as inflation pressures rise. The ECB is expected to tighten its policy amidst geopolitical tensions.

Eurozone government bond yields are approaching multi-year highs as the European Central Bank prepares for its meeting. Traders have priced in two rate hikes by 2026, with expectations of a 3% deposit rate by the end of 2027. The ECB is anticipated to continue tightening its policy, despite ongoing geopolitical issues.

Investors are focused on Brent crude oil prices, which are nearing $100, and natural gas prices, which have set a fresh high. The crack spread has widened due to increased refinery costs, pushing inflation upwards. Germany's 10-year bond yield saw an increase of 2 basis points to 3.38%, the highest since April 2011.

German two-year bond yields, responsive to policy rates, rose to 3.0% after climbing to 3.0115% last week. Future expectations place the European Central Bank's deposit rate at 2.73% by December, indicating a strong likelihood of a further hike post the expected increase on Thursday. The yield differential between Italian and German Bunds stands at 80.50 basis points.