FX.co ★ Bund Yields Hit 2011 High as ECB Hike Bets Strengthen

Germany’s 10-year Bund yield climbed to 3.4% on Wednesday, its highest level since April 2011, extending its recent advance even as the oil rally paused. Brent crude broke a two-day winning streak that had taken prices to a six-week high, as traders balanced ongoing Middle East supply risks against indications that crude continued to reach global markets.

Earlier this week, eurozone inflation data showed price growth at its fastest pace in nearly three years, reinforcing expectations of further monetary tightening by the ECB. Money markets are now almost fully pricing in a rate hike next week, with a strong likelihood of an additional increase before year-end. ECB policymakers Olli Rehn and Martin Kocher cautioned that a protracted conflict and mounting inflation risks could justify more tightening.

In the United States, markets are assigning a 66% probability to a rate hike in September, following hawkish comments from Fed Chair Kevin Warsh and this week’s increase in oil prices.