Eurozone Bond Yields Jump on Oil Price Surge

This jump reverses earlier easing, with Bund yields now up 29 basis points since the U.S.-Israeli war on Iran began, pushing energy prices higher and prompting investors to consider potential interest rate hikes. Two-year yields, more sensitive to rate expectations, have risen over 44 basis points this month, reaching 2.4578%.

Alex Everett, senior investment manager at Aberdeen Investments, stated European yields are vulnerable to increased inflation potential and deteriorating risk appetite. Oil prices are up over 50% since the war started, disrupting marine traffic.

The U.S. producer price index also rose 0.7% in February, exceeding expectations. While the Federal Reserve and European Central Bank (ECB) are not expected to announce policy changes this week, markets await comments from Chair Jerome Powell and President Christine Lagarde regarding inflation and future rate paths.

Lagarde previously highlighted that 2022 oil and gas prices were more elevated, suggesting no rush to hike, but affirmed the ECB will act to control inflation.