European shares drop as bond recovery offsets oil concerns

The pan-European STOXX 600 was down 0.1% at 650.23 points

European shares inched lower on Thursday as higher oil prices fuelled supply and inflation ‌concerns linked to the Middle East war, while a recovery in bonds helped limit losses.

The pan-European STOXX 600 was down 0.1% at 650.23 points, as of 0848 GMT.

Energy ⁠stocks gained 0.4%, tracking higher oil prices as Brent crude added nearly 2% to trade around $93 per ​barrel.

Travel and leisure stocks were down 0.6%, as higher oil prices raised concerns over fuel costs.

Basic resources dropped ​0.9%, the biggest sectoral decline, as gold prices pulled back on profit-taking after a rally fuelled by lower bond yields.

Bond markets came under pressure this week as investors fretted about increasing government debt, while ​higher oil prices compounded concerns.

I call it a bond coup because it was such an unexpected move, and it ‌just really ⁠changes the structure of the U.S. in terms of maturity and duration, said Ipek Ozkardeskaya, senior analyst at Swissquote.

Ozkardeskay said that the Treasury’s move is likely to support European bonds over the longer term, though the market’s focus is likely to return to near-term risks once the initial knee-jerk reaction fades.

Germany’s DAX underperformed ​regional peers, down 0.5%. The ​country’s borrowing costs jumped to ⁠a 15-year high as the country faces increased defence spending needs, mirroring a broader rise in bond yields across major economies.

Sweden’s benchmark added 0.3% after Riksbank ​left its key interest rate unchanged at 1.75% as expected given subdued headline ​inflation thanks in ⁠part to a largely fossil-fuel-free energy system, and signalled it stood ready to tighten policy if price pressures accelerate.