BELGRADE, May 16 (Xinhua) -- European government bond yields have surged in recent days as rising energy prices fuel concerns over renewed inflationary pressure and the possibility of higher interest rates across the region.
According to data from the London Stock Exchange Group, the yield on Britain's benchmark 10-year government bond rose to around 5.14 percent on Thursday, its highest level since July 2008. Germany's 10-year Bund yield climbed to about 3.12 percent, the highest since May 2011, while France's 10-year government bond yield rose to around 3.9 percent, its highest level since July 2009.
Bond yields move inversely to prices, meaning the sharp rise in yields reflects broad selling pressure in the European sovereign debt markets.
Analysts said the latest sell-off has been driven largely by surging energy prices, which have intensified market fears that inflation in Europe could accelerate again and force the European Central Bank (ECB) to maintain high interest rates or even tighten monetary policy further.
DekaBank Chief Economist Ulrich Kater said global oil and natural gas prices remain the dominant drivers of bond markets. Hauke Siemssen, an analyst at Commerzbank, noted that the correlation between oil prices and bond yields has become particularly strong since the outbreak of conflict in the Middle East.
Eurostat data showed annual inflation in the euro area accelerated to 3.0 percent in April from 2.6 percent in March, with energy prices rising 10.9 percent year-on-year. Meanwhile, inflation in Germany rose to 2.9 percent in April, the highest level since January 2024, driven mainly by higher energy costs.
Separate data released on Wednesday showed German wholesale prices grew 6.3 percent year-on-year in April, the fastest pace in three years. Petroleum product prices surged 37.3 percent from a year earlier, suggesting higher energy costs are beginning to feed into the broader economy.
Against the backdrop, market expectations for ECB rate cuts this year have weakened remarkably in recent weeks. Some investors and analysts now expect the central bank to keep interest rates high for an extended period, with some even warning of further rate hikes.
ECB Chief Economist Philip Lane recently said rising oil prices could require higher interest rates to prevent higher fuel costs from spilling over into wages and broader inflation.
Bundesbank President Joachim Nagel told German newspaper Handelsblatt that unless the inflation outlook changes fundamentally, the likelihood of further ECB rate hikes is increasing.
Jens Eisenschmidt, Morgan Stanley's chief Europe economist, said the ECB is facing a difficult policy dilemma over how much tightening may be needed to prevent inflation expectations from becoming entrenched.
