European 10-year bond yields climb to 3.5% amid Middle East fears
Eurozone borrowing costs surge as investors price in prolonged high inflation driven by the conflict and rising crude oil prices.
Government bond yields across Europe reached multi-year highs this week, with Germany's 10-year Bund yield near 3.5%. The spike occurred after the European Central Bank raised its deposit rate from 2.25% to 2.5%, warning that inflation will remain well above target for a long time. Rising borrowing costs threaten economic stability while global crude supplies face further disruption. Iranian-backed Houthi rebels struck energy targets in Yemen and advanced near the Bab el-Mandeb Strait, complicating oil shipments when the Strait of Hormuz stays closed due to fighting between US forces and Iran. International benchmark Brent crude traded just below $106 a barrel. These developments push inflation expectations higher, pressuring central banks to maintain or increase interest rates. Investors anticipate another surge in borrowing expenses as energy prices and geopolitical tensions persist without resolution.
