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German 10-Year Bond Yield Hits 15-Year High on Hawkish Fed Signals
German government bond yields climbed to multi-year highs on Monday, tracking a sharp selloff in U.S. Treasuries after Federal Reserve Chair Kevin Warsh signaled that central banks have more work to do to curb persistent inflation.
Yields Surge Across the Curve
The selloff was pronounced across all maturities in Europe's largest economy. Germany’s policy-sensitive two-year Schatz yield, which is highly responsive to interest rate expectations, rose to 2.898%, its highest point since July 2024.
Meanwhile, the benchmark German 10-year Bund yield advanced to 3.2903%, a level not seen since 2011. The surge reflects a broad repricing of global interest rate curves, with investors demanding a higher premium to hold long-duration bonds amid stubborn inflation and significant government debt issuance.
Transatlantic Rate Spillover
The move in German debt was a direct reaction to shifting expectations in the United States. Following Warsh's hawkish comments, money markets aggressively repriced the odds of further U.S. monetary tightening.
AdMarket-implied probability of a 25-basis-point Federal Reserve rate hike in September has now risen to nearly 60%, a significant jump from approximately 35% last week, according to the source. This hawkish shift immediately spilled over into European markets, reducing demand for sovereign debt and pushing yields higher.
Focus Turns to Inflation Data and ECB
Investors are now closely watching for further cues from central bankers and key economic data. Speeches by Fed Governors Michael Barr and Christopher Waller are scheduled for this week, ahead of the crucial U.S. August employment report on Friday.
In Europe, attention is turning to the upcoming release of euro zone inflation figures. The data, coupled with a recent spike in energy prices, is expected to reinforce expectations for another 25-basis-point rate hike from the European Central Bank at its next meeting on Sept. 10.
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