European bonds, including Gilts, BTPs, and OATs, are suffering as investors fear an energy shock and rising political uncertainty. Spiraling gas prices—up over 120% since the Iran war began—have driven yields to multi‑year highs, with French, Italian and UK borrowing costs rising the most in the G7. Even German 30‑year debt is demanding its highest compensation since 2011.

Analysts warn that Europe’s energy dependence and low storage levels could push gas above €100/MWh, forcing the ECB to keep raising rates. Swaps imply three more quarter‑point hikes from the ECB versus two from the Fed, while political races in France, Italy and Germany add further pressure. French debt underperforms as 2027 election debates weigh on fiscal outlooks, Italian yields remain low thanks to Meloni’s stability but face coalition risks, and German business leaders caution about populism ahead of regional polls.

The combined energy and political risks are reshaping bond markets across the continent.