European government bond markets are experiencing a significant selloff as natural gas prices at the TTF hub exceeded €75 per megawatt-hour. This level has not been reached since early 2023, causing bond yields to rise and shifting market expectations from rate cuts to potential hikes.
Germany’s 10-year Bund yield reached between 3.38% and 3.39%, marking its highest point since 2011. UK 10-year gilts have surged to a range of 5.1% to 5.29%, levels not seen since the 2007-2008 financial crisis. Short-duration bonds are currently facing the most intense pressure.
Market sentiment has shifted significantly, with traders now pricing in a greater than 60% probability of an ECB rate hike in March 2026. This change follows rising geopolitical tensions between the US and Iran, which have disrupted energy supply chains and increased costs for natural gas and Brent crude.
Eurozone inflation reached 3.3% in August 2026, with energy costs rising 14.3% year-over-year. High-debt nations, particularly Italy and France, face increased fiscal pressure as rising yields elevate the cost of servicing government debt, complicating their budgetary outlooks.