Euro zone bonds join global sell-off, yields hit multi-year highs
Longstanding concerns about fiscal stability in countries such as Britain and the US also weighed on global bonds.
On August 18, euro zone bond yields reached multi-year highs, contributing to a global sell-off in fixed-income assets. This surge in yields was driven by dwindling expectations for a quick conclusion to the war in Iran, which led to a rise in oil prices and heightened inflation worries. Long-standing fiscal stability concerns in nations such as France, Japan, Britain, and the United States also affected global bond markets.
Despite recent subdued US economic data prompting markets to lower their forecasts for Federal Reserve interest rate hikes, Germany's 10-year yield, a key benchmark for the euro zone, surged to a 3.2478% level, the highest since May 2011.
Bond yields and prices tend to have an inverse relationship. Elevated yields in France, as well as other heavily indebted euro zone countries like Spain and Italy, were observed, with yields reaching even higher levels. France's 10-year bond yield climbed to 4.0954%, its highest point since November 2008, while the spread between German and French 10-year yields widened to 86 basis points, its widest since October 2025.
Fiscal outlook concerns generally have a more pronounced impact on longer-dated bonds, which are more responsive to changes in long-term borrowing costs, inflation expectations, and debt sustainability.
These fiscal concerns have been compounded by fears that a prolonged Iran war could prompt governments to increase spending to mitigate the economic fallout from potential Middle East energy supply disruptions. Additionally, the deteriorating geopolitical climate is driving up military expenditures. Kjersti Haugland, chief economist at DNB Carnegie, remarked that markets are clearly seeking additional compensation for locking up capital for extended periods.
She added that future financing requirements, reflecting aging populations, rearmament, and the need for enhanced supply security in a world marked by rising geopolitical tensions, are substantial. Germany's 30-year yield increased by 2 basis points to 3.7663%, marking its highest level since July 2011.
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