German 10-year government bond yields are on track for their biggest two-day increase in two months, having risen a cumulative 14 basis points, as oil and gas prices extended their rally and drove a sharp rise in term premiums.

Despite the rise in yields, German government bonds still outperformed interest rate swaps, as the German finance agency kept its fourth-quarter debt issuance plan unchanged, in line with figures published in December 2025.

Brent crude rose 4.6% to $107.79 per barrel, while European natural gas prices climbed 5.3% to 75.8 euros per megawatt-hour.

The spread between French and German government bonds narrowed by 1 basis point to 110 basis points, while the spread between Italian and German government bonds held steady at 95 basis points.

Traders' bets on European Central Bank rate hikes remained broadly stable overall, with a 15 basis point increase expected in October and 38 basis points by year-end.

UK government bonds also fell, but outperformed both German Bunds and US Treasuries. Swap markets indicate a 23 basis point rate hike from the Bank of England is expected in November and 40 basis points in December, unchanged from Wednesday's expectations.

Market Snapshot

The German 10-year government bond yield rose 5 basis points to 3.60%; German government bond futures fell 56 ticks to $119.72; the Italian 10-year government bond yield rose 5 basis points to 4.55%; the French 10-year government bond yield rose 4 basis points to 4.70%; and the 10-year UK government bond yield rose 3 basis points to 5.38%.