Euro zone yields hit fresh multi-week highs amid persistent inflation fears

Euro zone bond yields rose to new multi-week highs ​on Wednesday as efforts to end the Iran war appeared to ​be in a stalemate,driving up oil prices again andspurring ‌worries ​about persistent inflation.

Euro zone bond yields rose to new multi-week highs ​on Wednesday as efforts to end the Iran war appeared to ​be in a stalemate,driving up oil prices again andspurring ‌worries ​about persistent inflation. Euro zone inflation data for April due on Thursday will reinforce or assuage such worries just before the European Central Bank announces its interest rate decision.

German inflation data released on Wednesday offered ‌fodder for both optimists and pessimists. The data showed a pick-up in headline inflation due to higher energy prices but a drop in core inflation, which excludes volatile prices such as energy. "The fact that German core inflation actually dropped should provide the ECB with some comfort, at least in the near term," said ‌Carsten Brzeski, ING's global head of macro, in a note.

"Looking further ahead, calls for ECB rate hikes will get louder," he added. Still, bond ‌yields continued their climb from recent sessions as efforts to end the war in the Middle East seem to be at an impasse. U.S. President Donald Trump urged Iran on Wednesday to 'get smart soon' and sign a deal.

Ten-year bond yields, the benchmark for the euro zone, briefly rose as high as 3.10%, their highest since late March, and were last ⁠3 basis ​points higher at 3.09%. Rate-sensitive two-year yields ⁠touched their highest since April 7 and were last up 6 bps at 2.70%. They have risen for eight days in a row, which would be their longest stretch of increases ⁠since April 2023.

ENERGY PRICE ANGST Oil prices have been grinding higher as the crucial Strait of Hormuz remains effectively shut. Brent crude futures for June rose for the eighth ​day in a row on Wednesday and were last up around 2.8% at $114.4 a barrel.

The question for the ECB is whether ⁠higher energy prices spark a broader surge in prices across the euro zone. The ECB is expected to leave interest rates unchanged this month, but money markets are pricing in roughly three ⁠rate ​hikes by the end of the year.

After Thursday's meeting, "we will wait until the next meeting in June. Obviously, the main factor will be how the war in Iran develops, how energy prices will develop. I think the ECB wants to collect more data. They will also have new forecasts ⁠in June. If they want to hike, that would be the date," said Felix Schmidt, senior economist at Berenberg. Investors will also be watching closely ⁠for any comments from policymakers about the ⁠impact of the Iran war on the economy and monetary policy.

The U.S. Federal Reserve, which concludes its own meeting later on Wednesday, is also expected to keep rates on hold for now. The meeting is likely Jerome ‌Powell's last as Fed ‌chair.