Bond markets across the euro area moved steadily higher on Monday, with Germany's 10-year benchmark climbing to 3.5544% and registering a gain of more than 4 basis points during the trading day. The uptick pushed the German yield to its highest level since mid-2009.
Oil prices rose alongside bonds, a development market participants noted as they prepared for a slate of high-profile central bank decisions this week. The Federal Reserve, the Bank of Japan and the Bank of England are all scheduled to announce their policy choices, and those outcomes are expected to influence global interest-rate expectations.
Last week set the stage for the latest move in Bund yields. Germany's 10-year yield jumped by more than 16 basis points over the prior week, marking the biggest weekly increase since the first week of March, shortly after the Iran war started. That run-up reflected growing pressure on global sovereign debt markets amid higher energy costs and renewed concerns about inflation and monetary policy.
Investors have repeatedly taken yields to multi-year highs in recent sessions. The European Central Bank raised interest rates by 25 basis points last week and flagged that further tightening could be on the table, a signal that has helped lift borrowing costs across the region.
Market participants are now focused on central bank meetings across major economies. Expectations point to rate increases from the Federal Reserve and the Bank of Japan, while forecasts for the Bank of England suggest it will likely keep policy unchanged in what analysts envisage as a narrow decision.
The combination of firmer energy prices and the prospect of more restrictive policy from major central banks has been a key factor pushing up yields. With rates and inflation concerns at the forefront, sovereign bonds in the euro zone have experienced renewed selling pressure, contributing to the series of multi-year highs across the curve.
Context note: The information in this report reflects market moves and central bank expectations cited by market participants and recorded during the trading period described.