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Citadel Securities Sees Europe Bond Yields Capped by Weak Growth

Sep 14, 2026 6:33 PM · YahooFinance

(Bloomberg) -- The energy shock and central bank tightening that have driven European bond yields higher could ultimately put a lid on them by weakening the region's economy, according to Citadel Securities.

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European and UK bonds bore the brunt of a global selloff last week after the European Central Bank raised rates, citing higher inflation risks. Europe's reliance on imported energy has left traders bracing for further hikes, but Nohshad Shah, Citadel's head of EMEA fixed-income sales, said the potential hit to growth may limit how much further rates can go.

Energy costs and inflation worries have also been driving Treasury yields higher, but Citadel sees more scope for rates to rise in the US. Its large oil and gas industry makes the US less vulnerable to higher energy costs. An AI investment boom also gives the economy enough cushion to weather higher rates for longer, said Shah.

That divergence could ultimately be reflected in lower European intermediate forward rates relative to the US, he added.

"I am increasingly skeptical that European belly forward rates can continue to rise once the growth consequences of tighter policy and the energy shock become more predominant in investors' minds," Shah wrote. The US "is much better equipped to absorb higher rates than Europe, where stagflation risks are more dominant," he said.

Shah also warned that risks from the oil shock remain elevated in the US as the war in Iran drags on. Tehran has a greater incentive to widen the conflict by targeting commercial shipping and regional energy infrastructure ahead of the US mid-term elections, he said.