LONDON: Germany's 10-year Bund yield on Monday rose to its highest level since Britain's vote to leave the European Union, as hawkish comments from the US Federal Reserve were seen leaving the door open for a rate hike as early as next month.
Speaking at an annual gathering of central bankers in Jackson Hole, Wyoming on Friday, Fed Chair Janet Yellen said the case for a US interest rate rise has strengthened in recent months because of improvements in the labour market and expectations of solid economic growth.
She did not indicate when the US central bank might raise rates, and euro zone bond yields closed lower on Friday.
But Friday's sell-off in US Treasuries as investors interpreted the comments from Yellen and other Fed officials as hawkish dealt a blow to European markets as a new week began.
Fed Vice Chair Stanley Fischer said the Fed chief's comments were a sign of how close policymakers could be to raising rates if data kept pointing to a good economic outlook.
"We're still cautious about the scope for a September rate hike, but it is increasingly becoming a close call," said Martin van Vliet, senior rates strategist at ING. "Markets are pricing in about a 40 percent chance of rate hike in September."
The yield on Germany's benchmark 10-year bond rose more than 6 basis points to minus 0.025 percent -- the highest level since June 24 when the result of Britain's EU referendum sent shockwaves through world markets.
It slowly trimmed that rise over the course of the session, but was still trading 2 bps higher at minus 0.07 percent in afternoon trade.
Other euro zone bond yields were 2-3 bps higher on the day, with trade subdued since London markets were closed for a public holiday.
US Treasury yields meanwhile pulled back from highs hit on Friday and held lower after US consumption and personal income data matched economists' expectations for July.
Friday's monthly US jobs data was expected to be the next gauge for the timing of a Fed hike.
"The most important data which is standing between the Fed and another rate hike is the upcoming US non-farm payrolls number," said Naeem Aslam, chief market analyst at ThinkMarkets UK.
This week is expected to bring a pick-up in activity with bond issuance rising after a summer lull.
Italy, Germany, France, Spain and Portugal are all scheduled to sell bonds with supply in the region estimated at more than 20 billion euros.
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