The European government bond market is experiencing its worst selloff in years, with yields spiking to their highest levels in over a decade. Germany’s 10-year Bund yield has peaked at around 3.38% to 3.39%, its highest level since 2011, while UK 10-year gilts have surged to approximately 5.1% to 5.29%. As natural gas prices at the European TTF hub climbed above 75 euros per megawatt-hour, monetary policy expectations have completely reversed: traders are now pricing in ECB rate hikes with over 60% probability for a March 2026 hike. Eurozone inflation reached 3.3% in August, with the energy component jumping 14.3% year-on-year, as US-Iran tensions disrupted energy supply chains. For heavily indebted countries like Italy and France, this environment, compounded by rising borrowing costs, raises growing concerns about fiscal sustainability.
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