Investors are betting that today's rate increase from the European Central Bank won't be its last, adding fuel to a selloff in government bonds.

Investors now see the ECB's deposit rate ending the year at 2.75%, Tradeweb data shows, implying another quarter-point increase. Before Thursday's decision, derivatives pricing showed the rate rising to 2.68% by year end.

Government bond yields rose alongside rate-bets, with Germany's bond yield approaching 3.5%.

In a statement announcing the rate hike, the ECB lifted some of its inflation forecasts and warned inflation is "set to remain well above target for an extended period."