European bond yields held at multi-year peaks Monday as a sharp rally in crude prices added to inflation concerns ahead of pivotal central bank decisions this week.
The 10-year German bund yield remained flat at 3.511%, marking its highest level since 2011 after a fifth consecutive weekly rise. The 2-year Schatz held at 3.197%, near its highest since October 2023. Italy's 10-year BTP hovered near 4.38%, while France's 10-year OAT yield stayed around 4.45% and its 30-year long end anchored near levels not seen since 2003, driven by market pricing of Paris's expanding structural deficit.
Brent crude futures jumped 3% to trade near $112 a barrel, propelled by fresh military strikes on Saudi Arabian infrastructure — including an attack on a major oil pipeline — further advances by Yemen's Houthi rebels threatening Red Sea shipping routes, and the abrupt postponement of a key diplomatic meeting in Oman between Iran and Gulf Arab states aimed at reopening the Strait of Hormuz.
On the Atlantic side, U.S. Treasury yields consolidated near multi-year highs. The 10-year note yielded 4.978%, hovering just below the 5% threshold after briefly breaching it on Friday. The 30-year bond was at 5.353%, and the 2-year climbed to 4.643%, suffering the sharpest price declines among peers owing to its sensitivity to near-term Federal Reserve policy expectations.
Financial markets priced in an 86% probability that the Fed would raise its benchmark borrowing rate by 25 basis points at its Sept. 15–16 meeting, with swaps traders also building in strong odds of a follow-up hike in December. That outlook followed Friday's Consumer Price Index report, which showed headline inflation holding firm at 3.4% and core month-on-month CPI ticking up to 0.3%.
UBS strategists cautioned that central banks are unlikely to look through another energy shock. "Markets are pricing only a handful of adjustment hikes rather than a new tightening cycle," they wrote. "Against that backdrop, policymakers have little incentive to tolerate a renewed inflation impulse from the energy complex."
Across the channel, the European Central Bank followed a rate hike on Thursday. ECB policymaker Peter Kazimir warned Monday that Eurozone inflation risks were tilting above already-elevated forecasts due to natural gas and power prices, adding that the central bank would act decisively when evidence warranted. The Bank of England was set to meet Thursday to confront energy-driven stagflation hurdles, while the Bank of Japan was widely expected to lift borrowing costs by 25 basis points to 1.25% on Friday.
