The specter of energy inflation reappears, with external European bonds experiencing a wave of arbitrage-driven sell-offs.

⑴ European bond prices have fallen for three consecutive trading days, mainly driven by the continued surge in crude oil and natural gas prices. Although the United States plans to protect key Middle Eastern shipping routes, it has failed to effectively calm investor sentiment, with the market's attention firmly focused on the inflationary consequences triggered by the conflict. ⑵ German and UK government bond yields have risen slightly, while bonds from so-called European "peripheral countries" have performed significantly worse. As a key indicator of risk, the yield premium of Italian government bonds over German government bonds has widened to 72 basis points, reaching its highest level since November last year. ⑶ High energy prices have become the dominant force, with European natural gas prices at their highest levels since 2023 and crude oil prices rising to $84 per barrel, overshadowing US efforts to escort oil tankers through the Strait of Hormuz. ⑷ Hauke Siemssen, interest rate strategist at Commerzbank, warned that one should avoid "catching a falling knife" at this time. He pointed out that in recent weeks, investors have flocked to riskier European bond markets such as Italy for arbitrage trades, and the unwinding of these positions is amplifying the widening of yield spreads. ⑸ From a trading psychology perspective, the sell-off in peripheral bond markets is essentially concentrated closing of arbitrage positions amid sudden changes in inflation expectations. When energy prices reshape central bank policy expectations, funds that previously chased high yields quickly exit, causing more severe adjustments in less liquid peripheral bonds.