German government bond yields surged to multi-year highs on Monday after remarks from Federal Reserve Chair Kevin Warsh signaled a more hawkish policy stance, lifting expectations for further monetary tightening.
The yield on Germany's two-year Schatz note climbed to 2.898%, its highest level since July 2024, while the benchmark 10-year Bund yield advanced to 3.2903%, marking its peak since 2011. The move reflected broader market repricing as investors adjusted to the prospect of sustained higher interest rates in major economies.
Money markets increased the probability of a 25-basis-point U.S. rate hike at the Federal Reserve's September meeting to nearly 60%, up from roughly 35% earlier in the week. The shift followed Warsh's comments over the weekend, which underscored concerns over persistent inflation and the need for tighter policy to anchor price stability.
The European Central Bank is also under pressure to maintain its restrictive stance, with regional consumer price data due later in the week expected to reinforce expectations for another 25-basis-point hike at its September 10 policy meeting. Upcoming U.S. data releases, including August employment figures due on Friday, will further shape rate expectations.
Fed Governors Michael Barr and Christopher Waller are scheduled to deliver speeches on Tuesday and Thursday, respectively, providing additional clarity on the central bank's policy trajectory. The combination of hawkish signals from U.S. officials and rising inflation pressures in the euro zone has driven yields higher across core European debt markets.
