Global Market: Eurozone bond yields rise as oil climbs, inflation data eyed

Eurozone government bond yields edged higher on Monday as rising oil prices and uncertainty over the U.S.-Iran conflict kept inflation and interest-rate concerns in focus ahead of key economic data this week, according to a report by Reuters.

Germany's 10-year government bond yield, the benchmark for the euro zone, was last up slightly at 3.6303%, around its highest level since June 2009. The yield recorded its seventh consecutive weekly increase last week and was on track for a rise of more than 30 basis points in September.

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Oil prices rose again after uncertainty over efforts to resolve the U.S.-Iran conflict and reopen the Strait of Hormuz persisted. U.S. President Donald Trump rejected an Iranian proposal over the weekend aimed at reopening the strategic waterway and ending the fighting, according to Reuters. Brent crude futures were last around 2% higher at $106.46 a barrel.

Higher energy prices, together with expectations of tighter monetary policy, have weighed on government bonds globally in recent months. The European Central Bank has already raised interest rates twice this year to combat inflation, while money markets were pricing in at least one further increase by year-end.

Investors are now turning their attention to flash inflation data due later this week. Recent economic indicators have pointed to stronger-than-expected resilience in the euro zone, potentially making inflation data more important for determining the path of interest rates.

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Euro zone inflation is expected to accelerate to 3.6% in September from 3.2% in August, according to a Reuters poll. The anticipated increase is largely linked to higher energy prices, although investors and policymakers will also closely monitor services and food inflation for signs that broader second-round price pressures are emerging.

Germany's more rate-sensitive two-year government bond yield was last up 2.7 basis points at 3.3134%. It also posted a seventh straight weekly increase last week and was heading for a monthly rise of more than 39 basis points, which would be its biggest monthly increase since March, shortly after the Iran war began at the end of February.

The moves underline the renewed pressure on euro zone bond markets as investors assess the combined impact of higher energy costs, persistent inflation risks and the prospect of further interest-rate increases.

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