Euro Zone Yields Rise Amidst Middle East Conflict and ECB Hawkishness Expectations

The gap between German and U.S. 10-year borrowing costs has narrowed to near a one-month low, as euro zone yields increased this week. This rise is attributed to escalating fighting in the Gulf, which has fueled fears that higher energy prices could push inflation up and compel the European Central Bank (ECB) to adopt a more aggressive stance on interest rates. Markets are currently pricing in approximately a 90% chance of an ECB rate hike by its September meeting.