Euro area sovereign bond yields rebounded on Thursday after European Central Bank Executive Board member Isabel Schnabel cautioned that borrowing costs may need to rise further to ensure inflation converges to the ECB’s 2% medium-term target.
Germany’s two-year Schatz yield, a policy-sensitive benchmark, climbed to 2.810% from a two-week low, while the benchmark 10-year Bund yield returned to 3.226%, snapping a brief dip below 3.20%. The moves followed Schnabel’s remarks in a Bloomberg interview that additional tightening could be required to sustainably bring inflation down.
The ECB’s hawkish tone contrasted with recent market optimism that borrowing costs had peaked. The eurozone’s inflation outlook remains a key focus for policymakers, with price pressures still elevated despite recent moderation. The rebound in Bund yields also reflected broader upward pressure in global fixed-income markets, where U.S. Treasury yields rose alongside energy prices and lingering concerns over fiscal deficits.
In the United States, the 10-year Treasury yield increased to 4.666%, retracing from a two-week trough, while the two-year yield climbed to 4.230% and the 30-year yield edged up to 5.186%. The uptick in U.S. yields came ahead of Federal Reserve Chair Kevin Warsh’s inaugural address at the Jackson Hole symposium, an event closely watched for signals on future monetary policy direction.
Data released on Thursday showed U.S. core Personal Consumption Expenditures inflation matched forecasts at 3.3% year-on-year in July, while the headline PCE index accelerated slightly to 3.7%. The figures underscore the Federal Reserve’s challenge in balancing inflation control with economic growth amid persistent price pressures.
European sentiment indicators also showed tentative signs of stabilization, with Germany’s GfK/NIM consumer confidence index rising to -26.6 points for September, though remaining in deeply negative territory. The data suggests households continue to face pressure from higher borrowing costs and living expenses, even as energy markets have stabilized in recent weeks.
