European government bonds extended their sell-off in early September, led by Germany’s 10-year Bund yield (the return on German government debt) rising above 3.3% for the first time since May 2011. French yields reached their highest level since November 2008, Dutch yields hit 15-year highs, and Italian and Spanish yields approached two- and three-year highs, respectively. Rising oil prices and increasingly hawkish signals from major central banks reinforced expectations for higher interest rates. Markets are pricing the ECB’s deposit rate at around 2.7% by December, implying roughly an 80% probability of a second rate hike after an expected move as early as September. Separately, Fed Chair Kevin Warsh said inflation had not slowed meaningfully and that the Fed still had work to do, prompting markets to price a 66% probability of a September rate hike.