European bond yields rise in tandem with oil prices as the Hormuz Strait standoff intensifies inflation concerns; France’s 30-year government bond yield hits highest level since 2008

(1) Eurozone sovereign bond yields rose across the board on Tuesday, with Germany's 10-year benchmark yield climbing about 2 basis points to 3.20%, extending Monday’s rally driven by surging oil prices. Hopes for the short-term reopening of the Strait of Hormuz faded further after US leaders demanded compensation from Iran, fueling expectations of rising energy costs.(2) Brent crude advanced another 2% on Tuesday to $89.90 per barrel, after surging 5% in the previous session. Institutions noted the current situation is an unusual state with no large-scale hostilities but continued closure of the strait. The longer the blockade persists, the deeper inventory depletion becomes, creating a cumulative amplification effect on oil prices.(3) The yield on Germany’s two-year bonds, sensitive to European Central Bank rate expectations, also rose about 2 basis points to 2.81%. The level of additional tightening priced in by the money markets for this year has expanded to around 41 basis points, up from 37 basis points last Friday, indicating the market is repricing for a more hawkish policy path.(4) Long-term sovereign bonds faced heavier selling pressure, with France’s 30-year yield touching 4.80% during the session, its highest level since 2008. Analysts pointed out that large-scale bond financing by governments and corporates, the economy’s relative resilience, and inflation fears driven by geopolitical conflict are collectively pushing long-term yields higher.(5) Italy’s 10-year yield also climbed about 4 basis points, and spreads between South European bonds and German bonds widened. The market has become more cautious, reassessing the risk resilience of peripheral economies under the impact of energy shocks.(6) The US CPI report to be released on Wednesday will be the next key variable. Its outcome will not only influence Federal Reserve rate decisions but also be transmitted to the eurozone bond market through global spillover effects. Against a backdrop of high oil prices and geopolitical uncertainties, any inflation reading above expectations could intensify repricing pressure in the bond market.