As the global sell-off in Government Bonds spreads to Europe, long-term Government Bond yields in major countries such as Germany and France are soaring day after day.
With fears of a resurgence in inflation growing and the possibility of additional rate hikes by the European Central Bank (ECB) emerging, tension is rising in the bond market.
According to financial markets on the 31st (local time), during the session the German 10-year Government Bond yield rose to as high as 3.3123%, more than 3 basis points (1 bp = 0.01 percentage point) above the prior trading day. It is the highest level in 15 years since May 2011. Rising Government Bond yields mean falling bond prices.
German Government Bond yields have been on the rise since last year. Expectations that fiscal spending will surge as the German government expands defense and infrastructure investment have weighed on the Government Bond market.
On top of that, on the 28th, U.S. Federal Reserve (Fed) Chair Kevin Warsh delivered hawkish remarks, further strengthening the global bond sell-off.
France's 10-year Government Bond yield also climbed to 4.163% on the day, hitting the highest level since November 2008. Chronic fiscal jitters combined with political uncertainty ahead of next year's presidential election are heightening investor caution toward French Government Bonds.
The spread between France's and Germany's 10-year Government Bond yields widened to 88.30 basis points on the 28th. It means more investors are demanding higher yields on French Government Bonds than on German Government Bonds, which is interpreted as a sign that the gap in fiscal soundness among eurozone countries is coming back into focus.
Short-term Government Bond yields also rose. The German 2-year Government Bond yield, which is sensitive to monetary policy outlooks, rose to 2.916%, and the French 2-year to 3.112%.
Markets expect the ECB to raise the deposit rate, currently 2.25%, to around 2.70% by year's end. The outlook is that it could resume rate hikes at the monetary policy meeting on Oct. 10 and raise once more within the year.
Citing a resurgence in inflation, the ECB raised its policy rate in June for the first time in 2 years and 9 months. Although it held rates last month, some members of the monetary policy committee said additional hikes should be considered, increasing the possibility of resuming tightening.
Prices have also turned back up. At the start of the year, the eurozone consumer price inflation rate was below the ECB's 2% target, but international oil prices have risen since the Iran war, putting renewed upward pressure on prices. Bloomberg projected this month's eurozone consumer price inflation rate at 3.3% year over year. It is the highest level since September 2023.
Germany's preliminary August inflation rate was also tallied at 2.9% year over year. According to the Federal Statistical Office of Germany, it is the highest level since the Iran war broke out in February.
If the global rise in bond yields spreads to major European countries, the upward pressure on long-term yields is expected to intensify.