Euro zone bond yields rise as oil prices climb

Euro zone bond yields rose on Tuesday, partially reversing some of the steep falls seen a day earlier, as oil prices edged higher after hitting an almost two-week low below $100 a barrel.

Germany's 10-year bond yield DE10YT=RR, the benchmark for the bloc, rose 3 basis points to 3.481%. It fell 7 bps to the lowest since September 10 the previous day.

Energy prices rose as tensions in the Middle East remained high, with Houthi fighters pushing to seize more Saudi-held territory in Yemen. The rapid advance by the Iran-backed Houthis has widened the Middle East conflict in recent weeks.

Brent crude oil futures LCOc1 were last up almost 2% to $102 a barrel.

The global benchmark oil price fell as low as $99 a barrel on Monday on hopes that diplomacy over the Iran war will get a chance at a UN meeting this week, and following reports of partial recovery in oil shipments from Saudi Arabia despite the Yemen conflict.

Monday's drop in oil prices helped battered bond markets recover some poise, with yields down sharply across the euro zone – which relies heavily on imported energy.

Italian 10-year yields IT10YT=RR rose 4 bps on Tuesday to 4.376% after falling 10 bps on Monday. French 10-year yields FR10YT=RR also climbed 4 bps after falling 10 bps and were last at 4.509%.

Euro zone bond yields have risen to multi-year or even multi-decade highs in recent weeks, along with those in the US, Britain and Japan, as the Middle East energy shock – along with resilient growth – has caused traders to ramp up their bets on interest-rate hikes.

Investors have also cited concerns about high government debt levels and large amounts of borrowing in bond markets by companies funding AI investments.

In the euro zone, France has been under particular scrutiny from investors as it struggles to reduce its budget deficit of more than 5% of GDP and heads into a divisive election next year.

The spread of French 10-year yields over their German equivalent rose 1 bp to 103 bps on Tuesday DE10FR10=RR. The gap, a gauge of the risk premium attached to French debt, hit its highest since 2012 on Friday at 105 bps but fell 3 bps on Monday.

-Reporting by Harry Robertson; Editing by Xevi Fontdegloria/Reuters