Large swings in the European bond market showed an increase in inflation fears, as concerns of penalties against Russia’s oil and gas industry drove up energy prices to multiyear highs.
As investors sought safety from increasing consumer prices, the yield on Germany’s 2-year inflation-linked bond touched a record low of minus 5.640 percent, on course for the greatest daily loss since March 2020.
Commodity prices have skyrocketed as a result of the Ukraine conflict and subsequent sanctions imposed on Russia, especially for petroleum, wheat, and metals. So far, the energy industry has dodged penalties, but the United States and its European partners are now proposing a ban on Russian oil imports.
Brent crude reached $130 earlier on Monday as a result of the expectation of reduced supplies. Natural gas costs in Europe have also risen, which is projected to intensify the recent bout of increased inflation. In January, European consumer prices jumped 5.1 percent, a new high, in Germany. On Monday, market pricing of inflation expectations, as measured by the gap between the rates on inflation-linked bonds and conventional paper, reached multiyear highs over the entire German yield curve.