European bond yields rose on fears that renewed tensions in the Middle East could accelerate inflation, crimping the already tight fiscal space for under-pressure governments across the continent. French, Italian, and UK bonds have fallen the most in the G7 in the past month, while German yields rose on concerns over the economic policies of the far-right AfD, which won a key weekend election.
Though US borrowing costs are also on the rise — potentially curtailing the AI infrastructure buildout, per one leading analyst — economists warn Europe’s poorer growth prospects mean it has less room for maneuver: Britain’s new finance minister, for example, pledged in a Financial Times interview to strengthen his country’s budgetary buffer, requiring tax rises or spending cuts.
