German government bond yields surged to multi-year highs on Monday, extending a selloff in eurozone sovereign debt after hawkish comments from U.S. Federal Reserve Governor Kevin Warsh signaled that central banks remain focused on bringing inflation under control.
The benchmark 10-year Bund yield climbed to 3.2903%, its highest level since 2011, while the 2-year Schatz yield rose to 2.898%, the strongest since July 2024. The increases mirrored a sharp rise in U.S. Treasury yields, which followed Warsh’s remarks that policy makers have more work to do to address persistent price pressures. The selloff in eurozone bonds deepened as investors reassessed the outlook for European Central Bank policy ahead of its next meeting.
Market pricing indicates a 60% probability of a 25-basis-point U.S. interest rate hike in September, up from roughly 35% at the start of the previous week. The shift reflects growing expectations that the Federal Reserve will maintain a restrictive stance to ensure inflation continues to decline toward target levels.
Federal Reserve Governor Michael Barr is scheduled to speak on Tuesday, followed by Governor Christopher Waller on Thursday. U.S. August employment data, due Friday, will provide further insight into the labor market’s strength and potential implications for monetary policy. Meanwhile, eurozone inflation figures are expected later in the week, with the ECB’s Governing Council set to convene on September 10. Another 25-basis-point rate increase is widely anticipated at that meeting.
The moves in German yields underscore the sensitivity of eurozone debt markets to shifts in global monetary policy expectations, particularly as the ECB seeks to balance inflation risks with economic growth concerns.
