Eurozone Bond Yields Hit 15-Year High as Gulf Conflict Drives Market Selloff
European government borrowing costs reached their highest levels in over a decade following a bond sell-off triggered by renewed hostilities between the US and Iran. Simultaneously, European gas prices spiked above €70 per megawatt-hour, raising fears of storage deficits ahead of winter.
Borrowing costs across Europe surged to fifteen-year highs on Tuesday as investors sold global government bonds in response to escalating tensions between the United States and Iran. German 10-year Bund yields climbed past 3.36%, while French and Italian yields traded near their highest levels since 2008 and 2011, respectively. The Dutch 10-year yield increased to 3.43%. These movements reflect broader sell-off pressures driven by fears that rising energy prices and higher government debt will sustain elevated interest rates.
The financial stress coincides with a sharp rise in European gas prices. The Dutch TTF natural gas price for October delivery reached €70.85 per megawatt-hour amid uncertainty over liquefied natural gas exports from the Strait of Hormuz, which remains effectively closed due to the ongoing conflict. Gas Infrastructure Europe data shows storage facilities were 64.7% full, significantly below historical norms for this time of year. Market analysts warn that high spot prices combined with narrow spreads between summer and winter rates may prevent key nations like Germany from reaching their November storage targets.
Economic instability is further mounting as the euro area inflation rate hit 3.3%, according to August data. ECB economists identified energy supply shocks as the dominant driver of this inflation, accounting for nearly 90% of recent increases. With the war still raging and geopolitical risks persisting, expectations suggest central banks will maintain a hawkish stance on monetary policy.
