Oil-driven inflation worries returned as uncertainty over Strait of Hormuz talks offset the previous day's relief, while investors also held back ahead of the July U.S. employment report.
Germany's benchmark 10-year Bund yield rose modestly in European trading on the 6th as crude oil regained ground and revived inflation concerns across the region. By 4:00 p.m. UK time, the yield was in the low 3.1% range, about 0.01 percentage points above the same time a day earlier, a move that reflects lower bond prices. The shift followed a rebound in Brent North Sea crude, whose front-month October contract climbed above $80 per barrel in afternoon trade after settling in the $79 range the previous day. Investors had briefly taken comfort on the 5th from expectations that the U.S. and Iran could soon reach an agreement to open the Strait of Hormuz (Persian Gulf oil chokepoint), helping Brent fall to the low $78 range and pushing the Bund yield to a roughly three-week low. That relief faded as traders judged that uncertainty around the negotiations remained high. The move also spread to the UK, where the 10-year Gilt yield climbed to the low 4.9% range, around 0.03 percentage points above the same time the previous day, after falling to the high 4.8% range on the 5th. With about 20% of global crude shipments passing through the Strait of Hormuz, renewed tension there can feed directly into European inflation expectations and complicate monetary policy for the European Central Bank. Positioning was also restrained ahead of the July U.S. employment report due on the 7th, which investors watch closely because U.S. labor market trends shape the Federal Reserve's policy outlook and can spill into European bond markets.