German and UK government bonds are falling, with medium-term maturities leading the decline, as growing doubts about the near-term possibility of reopening the Strait of Hormuz push energy prices sharply higher.
Money markets now price in a 38-basis-point rate hike by the European Central Bank by year-end, up from 36 basis points on Friday. Swaps indicate a cumulative 57 basis points of tightening by the time the current cycle peaks in September next year. Traders expect the Bank of England to raise rates by 28 basis points this year, compared to 24 basis points last week, with the market pricing in a total of 56 basis points over the next 12 months.
Brent crude oil rose 3.7% to $86.65 per barrel, marking the highest level this month, while European natural gas prices surged 9.6% to €60.90 per megawatt-hour, the highest since July 29.
Market movements: German 10-year bond yields climbed 5 basis points to 3.18%, and German bond futures dropped 42 ticks to 124.58. Italian 10-year yields rose 6 basis points to 3.96%, widening the spread over German bunds by 2 basis points to 79 basis points. French 10-year yields increased 6 basis points to 3.98%, while UK 10-year gilt yields jumped 7 basis points to 4.99%.
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