Euro zone yields hit new multi-year highs, inflation data cements September hike bets

​Euro zone government bond yields nudged up to fresh ​multi-year highs on Tuesday, as Europe joined a ‌global ​bond selloff, and after inflation data was hot enough to cement bets on a European Central Bank rate hike this month. Germany's 10-year yield, the benchmark for the euro ‌zone, hit a new 15-year high of 3.36%, and was last up nearly 3 basis points on the day, just shy of that level. It rose 5 bps on Monday.

Super-long German 30-year yields also hit their highest since 2011, rising 3 bps to ‌3.845%. Yields have been spiking from Tokyo and Sydney to New York and London as the Iran war stokes energy ‌costs globally, threatening broader price rises and bringing on more central bank interest rate hikes. Large debt issuance by tech giants and worries about countries' fiscal health have added to the upward pressure.

Japan's 10-year yield hit 3% on Tuesday for the first time in 30 years. In Europe, data showed inflation ⁠in ​the euro zone accelerated to 3.3% ⁠in August from 2.9% in July, driven almost entirely by higher energy costs as crude oil and natural gas prices both rose, and refiners bumped ⁠up their margins.

Underlying price pressures remained modest, however, offering some reassurance to policymakers that the energy price surge is not yet setting off ​the kind of second-round effects that could perpetuate rapid inflation and force the ECB into more aggressive action. "For the ⁠European Central Bank, the jump in the headline inflation rate makes a September hike easier to sell," said Bert Colijn, chief economist for the Netherlands ⁠at ​ING, in a note.

"But the stubbornly benign core inflation rate should make for an interesting debate about a possible subsequent hike into restrictive territory." Germany's interest-rate sensitive 2-year yield rose 2 bps to 2.94%, with money markets currently all ⁠but fully pricing a September ECB rate hike. A further 25 bp hike is priced by February next year.

Brent crude last ⁠traded above $92 a barrel, up ⁠nearly 2% on the day. Benchmark natural gas prices were also higher. Longer-dated bonds were under pressure across the region. French 10-year yields rose 3 bps to 4.21%, the highest since 2008, ‌while the Italian ‌equivalent touched 4.22%, its highest since 2023.