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Bonds

European Bond Yields Hit Multi-Year Highs on Rate-Hike Bets

European bond yields hit fresh multi-year highs on the final trading session of August, with Germany’s 10-year Bund yield reaching 3.3% for the first time since May 2011. French yields climbed to their highest since November 2008, while Dutch yields hit 15-year highs and Italian and Spanish yields rose to more than two- and three-year highs, respectively, as rising oil prices and hawkish central-bank signals fueled expectations for higher rates. Brent crude rose after the US said it had attacked an Iranian island in the Strait of Hormuz, while Tehran said it had retaliated by targeting US assets in the region. Markets are now pricing the ECB’s deposit rate at around 2.7% by December, implying roughly an 80% probability of a second rate hike following an expected move as early as September. Meanwhile, Fed Chair Kevin Warsh warned that inflation has not slowed meaningfully and that the Fed still has “work to do,” prompting markets to price in a 60% chance of a September rate hike.

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