Euro zone yields hit multi-year highs as oil nears $100

Euro zone sovereign bond yields climbed to multi-year highs on Tuesday as Brent crude's march toward $100 a barrel hardened expectations that the European Central Bank will raise interest rates at its Governing Council meeting on Thursday. The convergence of an energy shock rooted in Middle East tensions and sticky inflation has left fixed-income markets bracing for tighter monetary policy across the single-currency bloc.

Yields Reflect Hawkish Bets

Germany's benchmark 10-year Bund yield held firm at 3.382%, near its highest level in 15 years, while the policy-sensitive two-year Schatz yield rose to 2.984%, its highest since 2024. The moves came as preliminary August eurozone inflation data showed headline CPI accelerating to 3.3% year-on-year, driven largely by a 14.3% surge in energy costs.investing+1

A 25-basis-point rate hike — which would lift the ECB's deposit facility rate from 2.25% to 2.50% — is the most likely outcome Thursday, according to State Street Investment Management ↗ 1.49%. It would mark the ECB's second hike since June, when policymakers reversed a cutting cycle that had brought the deposit rate down to 2.00%.marketscreener+1

Oil Prices Fan Stagflation Fears

Brent crude rose above $98 a barrel in European trading Tuesday, climbing roughly 1.5% on the session after escalating threats from Tehran to target Persian Gulf energy infrastructure. The benchmark has gained sharply from around $94 at the start of September.fortune+1

Goldman Sachs ↗ 1.83% noted that the options-implied probability of Brent exceeding $100 by March 2027 had jumped from about 6% a month ago to roughly 25%. Analysts warned that a sustained move into triple digits could trigger cost-push stagflation, forcing central banks to maintain restrictive rates even as economic growth slows.marketscreener+1

What Comes After Thursday

The ECB decision itself may matter less than the forward guidance that accompanies it. Pimco ↘ 1.81% expects an extended pause after September, "although any emerging risks to inflation expectations could compel the ECB to continue its hiking efforts". Beyond Frankfurt, traders are watching Friday's U.S. Consumer Price Index release. Following last week's stronger-than-expected nonfarm payrolls report showing 162,000 jobs added, a hot inflation print could cement expectations for a Federal Reserve rate hike at its September 15–16 meeting, adding further upward pressure on global yields.investing+2