LONDON: Euro zone bond yields rose on Tuesday as oil prices climbed again after US President Donald Trump demanded Iran pay compensation to the US, further dimming the prospect of an imminent deal to reopen the Strait of Hormuz.
Germany’s 10-year bond yield was up 2 basis points (bps) to 3.201 per cent, after climbing 5bps on Monday on the back of rising oil prices. Yields rise as prices fall and vice versa.On Monday, Trump said Iran should pay compensation for people killed in wars, attacks and protests, in response to Tehran’s own demands for compensation and an end to sanctions.
Iran earlier on Monday said it was nearing a final pact with Oman defining new shipping lanes through the strait, but repeated that the US must meet conditions, including compensation, before opening the key energy waterway.
Oil prices rose again on Tuesday, with Brent crude up 2.0 per cent at $89.9 a barrel after increasing 5.0 per cent on Monday as the prospect of a near-term Hormuz deal ebbed.Germany’s two-year bond yield, which is sensitive to European Central Bank (ECB) rate expectations, rose 2bps to 2.811 per cent after rising 5bps on Monday.
“The longer the strait is closed, more inventories will be depleted and greater would be the impact on oil prices,” Mohit Kumar, a senior European economist at Jefferies, saidTraders in money markets were last pricing in 41bps of further ECB monetary tightening this year, up from 37bps late on Friday.
Italian and French 10-year bond yields were both up 4bps. Furthermore, longer-dated bond yields again came under pressure and France’s 30-year yield hit its highest since 2008 at 4.8 per cent.
Analysts have said longer-dated yields are rising as governments and artificial intelligence companies borrow heavily in debt markets and economic growth remains relatively resilient, with inflationary fears from the Iran conflict also having an impact.
Bond markets were also waiting for Wednesday’s US CPI inflation report, which will influence the Federal Reserve’s rate decisions and have knock-on effects for bond markets around the world.
