Eurozone Yields Up 10bps, Oil +13%

Eurozone Yields Up 10bps, Oil +13%

Investors observed a notable rise in Eurozone government bond yields during the week, driven primarily by heightened energy cost concerns. Two‑year German Schatz yields increased by 10 basis points, reaching 2.77% and posting a 1‑basis‑point rise on the preceding Friday.

Oil markets reacted sharply to renewed hostilities in the Middle East, with Brent crude climbing 13% over the week and briefly breaching the $86 per barrel threshold. The price surge was attributed to U.S.–Iran clashes that effectively closed the Strait of Hormuz, partially reversing the recent downward trend in crude prices. Derivative pricing for Brent oil showed a 3.25% increase in U.S. dollar terms.

The escalation in oil prices prompted market participants to reassess the European Central Bank’s policy trajectory. The probability of the ECB delivering at least one additional rate hike in September rose, and the market now assigns a roughly 72% chance of a second hike before year‑end, compared with earlier expectations of only a single hike. Economists, however, continue to view the likelihood of more than two hikes beyond the June increase as low, with some suggesting that major central banks such as the Federal Reserve and the Bank of England may refrain from further tightening this year.

In contrast, U.S. Treasury yields moved lower. The two‑year Treasury yield fell by 6 basis points to 4.14% on Friday, marking the largest monthly decline and indicating that U.S. Treasuries outperformed the broader global bond market after a series of cooler inflation readings.

Overall, the combination of rising oil prices and heightened geopolitical risk has pressured Eurozone bond markets, while U.S. Treasury securities have benefited from softer inflation data.