The European bond market experienced a significant sell-off, with interest rate swaps indicating a sharp upward shift in monetary policy expectations. As oil prices surged, traders are now pricing in two 25-basis-point interest rate hikes from both the European Central Bank and the Bank of England by the end of the year.

UK government bonds underperformed, with the 2-year gilt yield climbing 16 basis points to 4.33%, marking its largest single-day increase since March 20. Interest rate swaps now imply the Bank of England will raise rates by 38 basis points this year, up from 22 basis points priced in on Tuesday.

In Germany, the 2-year bund yield rose 12 basis points to 2.71%, reaching its highest level since June 18. Swaps signal the European Central Bank will implement 40 basis points of tightening this year, increased from 26 basis points previously expected.

The jump in oil prices above $80 per barrel followed the US President's statement that a temporary ceasefire with Iran had ended, adding inflationary pressures to the outlook.

Market Snapshot

The yield on the 10-year German bund advanced 10 basis points to 3.09%. German bond futures fell 105 ticks to 125.08%. Italy's 10-year government bond yield increased by 12 basis points to 3.90%, widening the spread over German bunds by 3 basis points to 81 basis points. The French 10-year OAT yield rose 13 basis points to 3.92%, while the UK 10-year gilt yield climbed 12 basis points to 4.97%.