Euro zone bonds join global selloff, yields hit multi-year highs
LONDON: Euro zone bond yields hit multi-year highs on Tuesday, joining a global fixed-income selloff, as fading hopes for a swift end to the war in Iran drove oil prices higher and fuelled inflation concerns.
Euro zone bond yields soared to multi-year highs on Tuesday, coinciding with a global downturn in fixed-income markets. The surge was fueled by dwindling expectations for a rapid conclusion to the Iran war and the resulting spike in oil prices, which has intensified inflation concerns. The fiscal stability of nations like France, Japan, the UK, and the United States also cast a shadow over global bonds. Meanwhile, despite recent subdued US data, market expectations for Federal Reserve rate hikes have been curbed.
Germany's 10-year bond yield, acting as the benchmark for the euro zone, reached a peak of 3.2478 percent, the highest since May 2011. Notably, yields in France and other indebted euro zone countries such as Spain and Italy surged even higher. France's 10-year yield climbed to 4.0954 percent, its highest since November 2008, widening the gap between German and French yields to 86 basis points, the widest since October 2025.
The looming fiscal challenges weigh more on longer-dated bonds, which are more susceptible to shifts in long-term borrowing, inflation, and debt sustainability expectations. These concerns have been exacerbated by fears that a prolonged Iran war could prompt governments to increase spending to mitigate the economic fallout from Middle East energy supply disruptions.
Additionally, the escalating geopolitical tensions are spurring higher military expenditure, compelling investors to demand more compensation for locking up capital for extended durations.
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