Europe Bonds Extend Declines on Inflation Risk From Energy Spike

cpvq4gc5r5fpq[sp{in32zya_media_dl_1.png BloombergArticle content(Bloomberg) — European bonds fell for a third session as oil and natural gas prices continued to surge, with a US plan to protect a crucial Mideast shipping lane failing to calm investor sentiment.Sign In or Create an AccountEmail AddressContinueor View more offersArticle contentGerman and UK yields edged higher, while the debt of Europe’s so-called periphery underperformed. The premium investors demand for Italian debt over Germany, a gauge of risk, widened to 72 basis points, the most since November. Article contentWe apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.Article contentArticle contentMarket attention remains firmly on the potential inflationary consequences of the energy price surge following the conflict in the Middle East. European natural gas prices are trading near the highest since 2023, while oil rose to $84 a barrel, overshadowing a US aim to escort tankers passing through the Strait of Hormuz. Article contentTop StoriesGet the latest headlines, breaking news and columns.There was an error, please provide a valid email address.Sign UpBy signing up you consent to receive the above newsletter from Postmedia Network Inc.Thanks for signing up!A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Article content“Energy price dynamics continue to dominate bond market moves,” said Hauke Siemssen, a rates strategist at Commerzbank AG. “We would abstain from catching the falling knife today.” Article contentSiemssen said investors had piled into carry trades in riskier European debt markets such as Italy in recent weeks, and a dialing back of those positions is amplifying the widening in yield spreads.Article contentWhile Spanish bonds also traded lower, there was no sign of impact from US President Donald Trump’s threat on Tuesday to “cut off all trade with Spain” after the country denied access to its military bases for the American bombing campaign against Iran. The gap over safer German debt widened slightly to 47 basis points, the most since December. Article contentThe euro area — which imports almost all of its oil and most of its natural gas — is seen as being particularly vulnerable as the war in Iran escalates. The market moves are stoking fears of a rerun of 2022, when an energy price shock caused by Russia’s invasion of Ukraine proved more persistent than initially expected.Article contentArticle contentWith money markets now pricing around a one in three chance of a European interest-rate hike by year-end, traders will be watching commentary from policymakers such as Luis de Guindos and Francois Villeroy de Galhau due later on Wednesday. Article content“For European rates, the Ukraine episode is the key blueprint,” said Theophile Legrand, a rates strategist at Natixis SA, adding that this time however, policymakers may be less willing to look through energy-driven inflation as transitory. “Markets have not forgotten the last episode of ‘transitory’ inflation and are quicker to reprice inflation risk premia.”Article content—With assistance from James Hirai.Article contentTrending Posthaste: Canadians are paying more than lip service to Buy Canada — and now the numbers prove it News Housing affordability improves yet again, though not for the right reasons Real Estate Why the Canadian dollar is bearing up as the surging greenback punches a hole through other G10 currencies Economy Atlantic Canada's energy isolation is getting worse as East-West pipeline divide persists Oil & Gas Heading for a mortgage default? Bank of Canada research lays out three telltale signs Mortgages Share this article in your social networkCommentsYou must be logged in to join the discussion or read more comments.Create an AccountSign in Join the Conversation Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information. Posthaste: Canadians are paying more than lip service to Buy Canada — and now the numbers prove it News Housing affordability improves yet again, though not for the right reasons Real Estate Why the Canadian dollar is bearing up as the surging greenback punches a hole through other G10 currencies Economy Atlantic Canada's energy isolation is getting worse as East-West pipeline divide persists Oil & Gas Heading for a mortgage default? Bank of Canada research lays out three telltale signs Mortgages