German Bond Yield Update
The benchmark German 10‑year government bond yield increased by three basis points to 3.135 %, marking its highest level since 20 May. Over the current week the yield has risen a total of ten basis points and is up 28 basis points for the month of July. The short‑dated German 2‑year yield also moved in tandem, gaining three basis points to 2.75 %.
The spread between German and U.S. 10‑year borrowing costs narrowed to its tightest point in a month, as the U.S. 10‑year Treasury yield rose approximately 0.57 %. Euro‑zone yields rose this week amid intensified fighting in the Gulf region, while cooler U.S. inflation data limited movement in U.S. Treasury yields.
Market participants expressed concern that rising oil and gas prices could feed inflationary pressures, potentially prompting the European Central Bank (ECB) to adopt a more aggressive rate‑hiking stance. Consequently, market pricing reflects roughly a 90 % probability of an ECB rate increase at its September meeting – the second hike this year following the June move – and a strong likelihood of a third rate adjustment before year‑end.
On the commodity side, benchmark European gas prices stabilized on Thursday after reaching a 15‑week high the previous day. Brent crude oil slipped slightly, trading at $84.90 per barrel.