Euro Zone Bond Selloff Deepens as Yields Reach Nearly 20-Year Highs
Rising Yields and Market Pressures in the Euro Zone
Inflation Concerns and Oil Prices
LONDON, Aug 19 (Reuters) - The pressure on euro zone government bonds continued on Wednesday with yields rising to new multi-year highs for a second day, as worries about inflation and high public spending gripped sovereign debt markets.
Oil prices rose again on Wednesday, stoking further concerns about inflationary pressures which could force central banks to raise interest rates.
Geopolitical Tensions and Energy Markets
U.S. President Donald Trump said on Tuesday no talks were taking place with Iran and insisted the Strait of Hormuz was open, contradicting Iran's assertion that the critical waterway remained closed and adding to the upward pressure on energy prices.
Brent crude oil rose more than 1% to its highest since late July at $92.38 a barrel.
Government Bond Yields Hit New Highs
Germany's 10-year yield hit a fresh 15-year high of 3.275%, up 1 basis point (bp). Yields rise as prices fall and vice versa.
French 10-year yields rose to their highest since 2008 above 4.13% while Italian 10-year yields rose to their highest since March above 4.1%.
Investor Sentiment and Market Liquidity
"Investors are very concerned regarding debt sustainability of sovereigns around the globe, especially developed markets," said Michael Weidner, co-head of global fixed income at Lazard Asset Management.
"Then we have the situation around the Iran war. Obviously we're not even close to being resolved or any credible solution in sight."
Weidner said thinner market liquidity during the summer could be exacerbating moves in bonds.
Longer-Dated Bonds and Borrowing Concerns
Longer-dated bonds, which tend to reflect expectations about the economy and government borrowing rather than central bank interest rates, were again at the epicentre of the selloff.
Analysts and investors said a rise in oil prices stoking inflation and high levels of government and AI "hyperscaler" borrowing were major concerns, while resilient economic growth was another factor pushing yields higher.
Record Yields for 30-Year Bonds
Germany's 30-year yield rose to its highest since 2011 at 3.787%, up 2 bps.
Meanwhile, France's 30-year Treasury yield climbed to its highest since 2008 at 4.92%.
Government Debt Auctions and Central Bank Policy
Germany on Wednesday sold €3.8 billion ($4.4 billion) of 10-year debt, lower than the €6 billion analysts had been expecting, with demand somewhat soft.
Traders in money markets were last pricing in around 45 bps of further European Central Bank monetary tightening this year, up from 40 bps on Friday.
Global Context and U.S. Treasury Market
Relative calm in the all-important U.S. Treasury market was limiting the extent of the global selloff, with the 10-year U.S. Treasury yield down just under 1 bp at 4.7%.
($1 = 0.8624 euros)
(Reporting by Harry Robertson; Editing by Toby Chopra)
