European Bonds Decline as German Yields Rise Amid Focus on Potential Rate Hikes

European government bonds fell as escalating U.S. airstrikes on Iran highlighted the potential for global central banks to remain focused on raising interest rates in the coming months while oil prices stay elevated.

The yield on Germany's two-year government bond, which is highly sensitive to interest rate changes, rose by 2 basis points to 2.77%. Traders slightly increased their expectations for European Central Bank rate hikes, pricing in a cumulative 42 basis points of increases by year-end.

UK government bonds underperformed other European debt, with the 10-year yield climbing as much as 6 basis points to 5.0%.

In late trading, yields across various maturities were generally up by about 2 basis points, with the two-year yield reported at 4.34%.

Market Snapshot:

The yield on German 10-year government bonds increased by 1 basis point to 3.14%.

The German government bond futures contract fell by 25 ticks to 124.81.

The yield on Italian 10-year government bonds rose by 3 basis points to 3.94%.

The yield spread between Italian and German 10-year bonds widened by 2 basis points to 80 basis points.

The yield on French 10-year government bonds increased by 3 basis points to 3.94%.

The 10-year UK government bond yield rose by 2 basis points to 4.97%.