Euro zone bond yields tick up after oil rises on Hormuz doubts

Euro zone bond yields rose very slightly on Thursday after oil prices ticked up from the previous day's lows, as an agreement to reopen the Strait of Hormuz appeared a way off despite conflicting messages from Iran.

Germany's 10-year bond yield, the benchmark for the bloc, rose just under 1 basis point (bp) to 3.234%.

The 2- and 30-year yields rose a similar amount to 2.829% and 3.741% ‌respectively. Qatar's prime minister ⁠will ⁠visit Tehran on Thursday in an effort to relaunch diplomacy between the U.S. and Iran, with both sides ​at odds over control of the Strait of Hormuz, through which 20% of the world's energy typically ​flows. Iran's Revolutionary Guards said on Wednesday that Iran and Oman had agreed how to share the waterway and its revenues, but a senior Iranian source later said the two ​countries were still working on the details of an ⁠agreement.


Oil prices rose ‌slightly overnight but gave up some of their gains on Thursday ​morning. Brent ​crude traded at $87 a barrel, up from Wednesday's low of $85.40 although ⁠down 0.9% on the day.

"Bunds are unable to hold their gains ​from previous sessions in the face of higher oil prices," said ​Erik Liem, rates strategist at Commerzbank.

Traders in money markets were last pricing in roughly 43 bps of further monetary tightening from the European Central Bank this year, little changed from Wednesday's close but down around 2 bps from a week earlier. Sources told Reuters on Wednesday that ECB policymakers are ready to raise interest rates at their next meeting ‌in September to contain the side-effects of the Iran war, but they have little appetite to signal further tightening after that point.

Euro zone bond ​yields have ​risen to their highest ⁠levels in more than a decade in some cases over the last week and a half as investors have worried about inflation and government spending.

Germany's 10-year yield hit a 15-year high ​of 3.275% last week, while the 30-year yield also reached its highest level in 15 years at 3.787%.

France's 10-year yield was 1 bp higher at 4.084%, although remained below last week's 18-year high of 4.143%. France faces a perilous budget battle in the coming months as political parties jockey for position ahead of next year's presidential election, with investors anxious about public finances.