Euro zone short-dated yields set for weekly rise on Hormuz concerns
By Stefano Rebaudo
April 24 (Reuters) - Euro zone short-dated government bond yields were headed for their biggest weekly rise in over a month as tensions around the Strait of Hormuz stoked inflation fears and European Central Bank rate hike expectations.
Borrowing costs tracked oil prices, which jumped in early March after the start of the war in late February but eased slightly in choppy trade after the U.S. announced a ceasefire in early April.
Brent futures rose on Friday due to fears of a renewed military escalation in the Middle East.
U.S. President Donald Trump dismissed the threat posed by Iran's "little wise-guy ships" and told reporters that he believed Tehran wanted to make a deal but that its leadership was in turmoil.
Germany’s 2-year yields DE2YT=RR, more sensitive to expectations for policy rates, rose 4 basis points (bps) to 2.59%. They reached 2.771% in late March, the highest since July 2024, and were set for a weekly rise of 17 bps.
Germany’s 10-year government bond yield DE10YT=RR, the euro area’s benchmark, was up 0.5 bps at 3.00%. It reached 3.13% in late March, its highest level since June 2011.
Money markets priced in an ECB deposit facility rate at 2.64% by the end of the year EURESTECBM6X7=ICAP - implying two hikes and about a 55% chance of a third move - from around 2.35% late on Friday.
Italy’s 10-year government bond yields IT10YT=RR rose 3.5 bps to 3.83%.
The yield gap of Italian government bonds versus bunds DE10IT10=RR was at 76 bps. It was at 63 bps before the U.S.-Israeli attacks on Iran and hit 103.62 during the conflict, the highest since June 2025.
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