Shares of major European banks declined sharply as renewed bond market pressure and rising oil prices increased concerns that inflation could accelerate again, creating additional challenges for interest rates and government bond markets.
“The market is seeing pressure on rates, widening spreads and a generally weaker backdrop, also because oil has started to rise again,” said Carlo Franchini, head of institutional clients at Banca Ifigest.
Franchini added that investors are concerned that further disruptions to energy exports could leave inventories insufficient, increasing the risk of another inflation surge.
European Bank Stocks Under Pressure
The STOXX Europe Banks index fell 3.5%, reducing its year-to-date gain to around 13%.
Shares of major lenders including Societe Generale, Deutsche Bank, UniCredit and Intesa Sanpaolo were among the biggest decliners, each falling more than 4%.
Traders said banks were being pressured by concerns that financial stress in France could spread across the euro area.
Rising government bond yields are also creating losses on banks’ sovereign debt holdings while increasing concerns about exposure to the housing market.
Bond Selloff Raises Inflation Concerns
A global bond market selloff pushed the U.S. 30-year Treasury yield to a new 24-year high on Wednesday.
At the same time, government bond yields in heavily indebted eurozone countries increased faster than yields on safer German bonds, widening concerns over fiscal risks and financial stability.
Investors are closely monitoring energy prices, inflation expectations and central bank policy as markets adjust to the possibility of higher interest rates remaining in place for longer.
