German 10‑year Bund yields slipped back up to roughly 3.36%, reversing a two‑day rally in European sovereign bonds. Money markets have almost fully priced in a 25‑basis‑point rate increase at the European Central Bank (ECB) Governing Council meeting later this week.
Euro‑zone headline inflation accelerated to 3.3% year‑on‑year in August, driven by a 14.3% jump in energy prices, while core inflation eased slightly to 2.4%. The data reinforced expectations that President Christine Lagarde and the ECB will pursue further monetary tightening.
The broader European equity market reflected the bond market shift, with the pan‑European STOXX 600 index edging down 0.1%. At the same time, U.S. markets are awaiting a key Consumer Price Index release later in the week, which could shape expectations for a Federal Reserve rate hike at its September 15‑16 meeting.
Crude oil benchmarks continued their upward trajectory, with Brent crude firming above $90 a barrel and posting a near‑10% weekly gain. The rise in oil prices follows heightened geopolitical tension in the Persian Gulf, where Iranian authorities announced plans to establish a restricted zone around the Strait of Hormuz, a chokepoint handling about 20% of global seaborne oil and gas.
The tension escalated after U.S. forces disabled three Iranian oil tankers in response to an Islamic Revolutionary Guard Corps missile attack on two U.S. Navy warships. The developments have added a defensive tone to risk‑off sentiment across fixed‑income markets.
In the United States, the labor market showed resilience, with August non‑farm payrolls adding 162,000 jobs, supporting expectations of a continued tightening cycle by the Federal Reserve.
Overall, elevated sovereign yields are compressing valuation multiples for rate‑sensitive sectors such as high‑duration growth, construction, and real estate, as investors brace for tighter monetary policy on both sides of the Atlantic.
