Key facts
- 10-year German Bund yields reached 3.146%, their highest level since 2011.
- Brent crude oil prices exceeded $123 per barrel, the highest since 2022.
- U.S. Treasury and U.K. gilt yields also hit one-month highs.
- The European Central Bank maintained its key interest rate at 2%.
- The Federal Reserve kept its benchmark interest rate unchanged.
The yield on 10-year German government bonds, known as Bunds, rose to its highest level since 2011 on Thursday, following a jump in oil prices that intensified worries about inflation and raised the prospect of increases in interest rates.
Yields on 10-year U.S. Treasurys and U.K. government bonds, known as gilts, also increased to one-month highs as oil prices surged to their highest since the start of the Middle East war on fears that the U.S. could resume military action against Iran. The 10-year German Bund yield rose to 3.146%, the highest level since 2011, while the 10-year U.S. Treasury yield hit a one-month high of 4.436%, according to Tradeweb. The 10-year U.K. gilt yield also reached a one-month high of 5.082%.
Brent crude for June delivery last traded at $121.81, up 3.20% in European hours, having earlier surpassed $123 to mark its highest level since 2022. Talks between the U.S. and Iran about a resolution to the war and about the reopening of the Strait of Hormuz have reached a stalemate. The Wall Street Journal reported that President Trump instructed aides to prepare for an extended naval blockade of Iran after saying that Tehran's proposal to reopen the strait and postpone nuclear talks proved the government wasn't negotiating in good faith. Axios also reported that Trump is set to receive a briefing Thursday on new options for potential military action.
"Markets remain wary of renewed escalation risks in the Middle East with oil ratcheting higher," said Erik Liem, rates strategist at Commerzbank, in a note.
The rise in bond yields comes ahead of decisions Thursday by the European Central Bank and Bank of England, where policymakers could express concerns about risks to inflation and flag the potential need to raise rates as a result. The Federal Reserve's policy meeting on Wednesday didn't help bond sentiment. The Fed left interest rates on hold at 3.50%-3.75%, as expected, with governor Stephen Miran dissenting for a rate cut. The surprise came, however, from three other Federal Open Market Committee members who supported the rate decision but voted against the inclusion of a bias towards cutting rates in future. Money markets see only a small probability of a Fed rate cut this year, according to LSEG.
"We expect the Fed to keep rates steady until later this year, when we forecast a rate cut in one of the last three meetings of the year," said Reto Cueni, chief economist, Syz Group in a note.