Euro zone government bond yields remained anchored at multi-year highs on Wednesday as investors braced for the Federal Reserve's policy announcement, while crude oil prices stayed elevated on Middle East supply disruption fears.
Germany's 2-year Schatz yield held steady at 3.25%, near its highest level in three years, while the 10-year Bund yield lingered around 3.544%, marking its strongest reading since 2011. The 30-year German note eased slightly from 15-year highs to trade near 3.897%. France's 30-year yield pulled back from levels not seen since 2002.
The yield strength came against a backdrop of triple-digit crude oil prices. Brent crude held past $113 a barrel, buoyed by strikes on Saudi pipeline infrastructure and ongoing shipping bottlenecks through the Red Sea. European debt markets carried an elevated risk premium as energy costs compressed monetary policymakers' room to ease.
The European Central Bank raised its benchmark deposit facility rate to 2.50% the prior week, and money markets were pricing in high odds of another quarter-point hike before year-end. Separately, the Bank of Japan was scheduled to raise rates on Friday.
All eyes turned to the Federal Open Market Committee's announcement later Wednesday, widely expected to deliver a 25-basis-point rate increase. Markets assigned roughly a 92% probability to the move, which would mark the U.S. central bank's first rate hike since mid-2023.
Fixed-income desks were parsing whether Fed Chair Kevin Warsh would frame the quarter-point adjustment as a standalone recalibration against energy-market volatility or signal the start of a broader tightening cycle.
