Eurozone Bond Yields Fall as Oil Prices Decline; U.S. Treasury Yields Stabilize — 2nd Update

By Emese Bartha

Eurozone government bond yields fell due to a retreat in oil prices, while U.S. Treasury yields stabilized in European midday trade Friday.

Front-month Brent crude for November last traded 1% lower at $105.60 a barrel on prospects of a possible agreement between the U.S. and Iran on a gradual reopening of the Strait of Hormuz.

"A pullback in oil prices helped stabilize the situation," said Patrick Munnelly, market strategist at Tickmill Group.

However, Treasury yields remained close to recent multiyear highs as markets priced in significant interest-rate hikes by the Federal Reserve.

The 10-year Treasury yield last traded flat at 5.161%, remaining below Thursday's peak of 5.225%, the highest level since mid-2007, according to Tradeweb data.

The 30-year Treasury yield was also steady at 5.463%, below Thursday's peak of 5.502% which was the highest since 2004.

Following last week's 25-basis-point interest-rate rise, which brought the fed funds target rate range to 3.75%-4.00%, money markets currently price in a 69% probability of another hike of similar size in October, retreating from 73% in Asian trade, according to LSEG.

The 10-year German Bund yield fell 0.9 basis points to 3.597%.

The dollar also fell as oil prices dropped, but remained at elevated levels due to Fed rate-hike expectations.

The DXY dollar index, which measures the dollar against a basket of currencies, fell 0.3% to 100.961 in European midday trade after reaching an eight-week high of 101.398 Thursday.

"The U.S. dollar and Treasury yields are holding close to recent highs as expectations for further Fed tightening continue to build," said Zaheer Anwari, co-founder and CEO at The Revacy Fund. Markets' repricing of Fed rate-hike expectations continues to support the dollar and shorter-dated Treasury yields, he said.

"As long as an October hike remains the market's base case, the dollar is likely to retain an upward bias," Anwari said.

U.S. and eurozone government bond yields remain at risk of rising further.

"The 10-year Treasury yield is being pushed higher by a confluence of factors: stronger economic data, heightened Middle East tensions, discussion of a potential diesel export ban, and a weak five-year Treasury auction," said Mike Sanders, head of fixed income at Madison Investments.

"The combination of fiscal, economic, geopolitical, and supply-side inflation pressures converging has bond markets in less familiar territory," he said, adding that the recent rise in yields can no longer be attributed simply to concerns over the fiscal deficit.

The Fed's decision last week to raise rates by 25 basis points reinforces a reality bond investors have been confronting for much of 2026: rates have moved meaningfully higher, and the path lower remains uncertain, Karen Manna, fixed income strategist at Federated Hermes, said in a note.

Multiyear high U.S. Treasury yields reflect resilient economic growth, persistent inflation concerns, elevated fiscal deficits and a market that continues to reassess where "normal" interest rates should reside, she said.

Write to Emese Bartha at emese.bartha@wsj.com

(END) Dow Jones Newswires

September 25, 2026 08:25 ET (12:25 GMT)