Euro zone longer-dated bond yields were set for a weekly rise on Friday, their first since early June, as traders refined their positions after the initial move lower in yields on the U.S.-Iran deal.
Germany's 10-year bond yield was up 2 basis points at 2.92%. It has been moving slowly but steadily higher throughout the past week, and is set for a weekly gain of 7 bps. (DE10YT=RR)
Still, the euro zone benchmark is meaningfully below its mid-May's peak of 3.20% and fell sharply after the U.S. and Iran agreed a deal to reopen the Strait of Hormuz, which sent the price of oil down to near $70 a barrel.
That caused markets to remove bets on a third European Central Bank rate hike this year. The ECB raised rates in June, and expectations of a second move have proven sticky.
Shorter-dated bonds were moving in a similar manner to longer-dated ones, with Germany's 2-year yield up just over 1 bp at 2.51%.
It, however, is little changed on the week, causing the gap between Germany's 2- and 10-year yields to reach 40 bps, around its biggest since early June. (DE2DE10=RR)
In market parlance, that widening gap means the yield curve is steepening.
Analysts at Societe Generale said this steepening was a result of a lower chance of future rate hikes — keeping shorter-dated yields in check — coupled with softer business activity data that raised worries about economic growth and sent longer-dated yields higher.
They said there was also spillover from Japan where worries about increased spending are causing longer-dated yields to rise.