European bonds extended a selloff on Thursday after European Central Bank President Christine Lagarde flagged risks to inflation, reinforcing investor concerns about persistently high energy prices. Germany's 10-year yield rose six basis points to 3.50%, reaching the highest level since 2009. The two-year rate climbed as much as 14 basis points to 3.21%, the highest in almost three years, as traders increased bets on further ECB interest rate hikes.

The move reflects growing market conviction that the central bank will maintain a restrictive stance to combat price pressures. Lagarde's comments in Berlin underscored the ECB's focus on inflation risks despite signs of economic weakness across the euro area.

Bond yields across the region moved higher in tandem, with the selloff highlighting the tension between the ECB's inflation mandate and the bloc's fragile growth outlook. Money markets are now pricing in a higher terminal rate for the current tightening cycle.