Global bond rout pushes euro zone yields higher; bunds at 15-year peak

LONDON, May 18 (Reuters) - Euro zone bond yields rose ​on Monday amid ⁠a broader global bond selloff, with investors worried that ​higher energy prices amid the Middle East conflict could fuel inflation and prompt further interest rate hikes.

The yield on the German 10-year bond, ​the benchmark ‌for the euro zone, touched a fresh 15-year high, up 2.5 bps to 3.1796%.

On Friday, the yield had risen as much ⁠as 8.5 bps to its highest level since May 2011. Bonds from Tokyo ⁠to New York extended losses on Monday ​as investors grew increasingly jittery about inflation, with a deadlock in the Iran war dragging on.

Italian 10-year yields meanwhile rose 3 bps to 3.973%, earlier hitting their highest level in six weeks. European Central Bank head Christine Lagarde, asked on Monday if she ​was worried ‌by the bond selloff, replied to reporters: "I always worry, that's my job!” Moves on shorter-dated bond yields were more muted, with Germany's 2-year bond yield up 1.4 bps at 2.7442% while Italy's 2-year yield rose 1.8 bps to 2.9617 "Inflation and deficit concerns have been in the background for a while. UK was probably the catalyst for bringing these concerns to ​the fore," wrote Mohit Kumar, chief economist for Europe at Jefferies. UK 10-year gilt yields fell 3 bps on Monday, having ‌on Friday registered their biggest daily slump since April 2025 amid rising political uncertainty as British Prime Minister Keir Starmer comes under intense pressure to quit.

But the Iran war ‌remains the main focus for markets on Monday, said Olle Holmgren, strategist at SEB Research, who added that he will be closely watching PMIs due out of the euro zone and the UK later this week.

"The impact on growth ​is interesting, but it will also be interesting to see what happens to both input and output prices - especially output prices where you ‌saw a relatively large increase in Germany in April," he said.

UK PMIs for April will hit screens later this week as will euro zone PMIs, followed by euro zone consumer confidence survey and Germany's Ifo survey.

Commerzbank analysts said in a note ⁠that they ⁠expect Bunds to remain rangebound for the first half of the week as ‌markets digest Friday's steep moves, with data later this week serving as a reality check.

"Given the front-end has come a long way and the ceasefire in ​Iran that is fragile but ​enduring so far, 10y yields look set to consolidate near current levels," they ‌wrote.

Traders will be looking for any hint that inflation is feeding through to the real economy, as they wait to see how central banks react to rising prices.

Markets are placing an 85% chance on a 25 bps hike at the European Central Bank's (ECB's) next meeting. (Reporting by Lucy Raitano; Editing by Andrew Cawthorne)