Euro yields hold at multi-year peaks as crude surge precedes c.bank decisions

Euro zone government bond yields remained largely unchanged at multi-year peaks on Monday, as investors digested the impact of a surge in crude oil prices preceding key central bank decisions. Benchmark 10-year German Bund yields remained steady at 3.511%, holding firm at their highest levels since 2011 after a fifth consecutive weekly increase.

Similarly, 2-year German Schatz yields were flat at 3.197%, near their highest since October 2023. Traders analyzed the aftermath of the European Central Bank's recent interest rate hike and anticipated additional tightening measures from major central banks worldwide. The upcoming week is marked by a series of high-stakes central bank policy decisions, with an 86% probability of a quarter-point U.S. Federal Reserve rate hike at the Sep.

15–16 meeting, according to market forecasts. Swaps traders also anticipate further rate hikes from the Bank of Japan and the Bank of England later in the week, with the BOJ expected to raise rates by 25 basis points to 1.25%. Meanwhile, energy markets did not offer respite, with Brent crude oil prices surging another 3% to trade near $112 a barrel.

This rise follows additional military strikes on Saudi Arabian infrastructure, including a major oil pipeline, and the advancing Houthi rebels threatening Red Sea shipping routes. The postponement of a critical diplomatic meeting in Oman aimed at reopening the Strait of Hormuz further heightened supply concerns. In the sovereign bond markets, Italian BTPs 10-year yields settled near 4.38%, maintaining the risk premium over German paper.

French OATs 10-year yields were at 4.45%, while long-duration 30-year yields anchored near their highest levels since 2003 as markets price in Paris's expanding structural deficit projections.