Eurozone bond yields rise to multi-week high as hawkish Fed rhetoric rattles markets

Eurozone sovereign bond yields rose to their highest level in several weeks on Friday. The move is linked to a wave of selling in the global bond market, which intensified amid high US inflation readings and hawkish statements from Federal Reserve (Fed) officials. As a result, the month-long rally in sovereign bonds came to an end.

Germany's 10-year government bond yield rose to 3.357%, reaching a two-week high. This increase threatens to break a significant streak for the eurozone — four consecutive weeks of decline, the longest such stretch since February.

Germany's two-year bond yield, which is more sensitive to changes in monetary policy, held steady around 3.155%. In the previous trading session, the yield had reached its highest level in more than a month.

US bond market yields rise sharply

The decline in the European market followed ongoing developments in the US Treasury market. The yield on US 10-year Treasury notes rose to 5.125%, reaching a near three-week high.

This increase breaks a five-week streak of declines — the longest such period since February 2025. Moreover, this week's rise in yields is the sharpest since April 2025, when US President Donald Trump announced his so-called "Liberation Day" tariffs.

The main driver behind the sharp market moves was US macroeconomic data. A strong jobs report and a higher-than-expected October Consumer Price Index (CPI) reading have convinced investors that the Fed will raise interest rates by 0.25 percentage points in December.

These expectations were further reinforced by hawkish rhetoric from central bank officials. Throughout the week, they expressed concern over the persistent nature of inflation, prompting investors to factor in a stricter monetary policy scenario.

In addition, the market-implied probability of a 0.50 percentage point rate hike in December rose to around 15%. A week ago, such a scenario was considered almost out of the question.

Focus on eurozone economic data

Investors are awaiting the release of preliminary third-quarter GDP data for the eurozone. Economists forecast that the region's economy grew by 0.4% on a quarterly basis, marking a slowdown compared to the 0.6% growth recorded in the previous quarter.

Alongside the data, the market will also be watching statements from European Central Bank (ECB) Executive Board members Frank Elderson and Isabel Schnabel. Investors are particularly interested in how the central bank plans to manage monetary policy amid weak economic growth and rising global bond yields.

Later in the day, the release of the US Producer Price Index (PPI), which reflects wholesale inflation trends, will also have an impact. This data will be followed by statements from Fed officials Susan Collins and Lorie Logan. Their comments could help determine whether market expectations for a 0.50 percentage point rate hike strengthen or weaken.