Euro zone government bond yields rose on Tuesday, as investors remained focused on central banks’ monetary policy tightening while assessing the economic impact of more sanctions against Russia.

The United States and Europe were planning new sanctions to punish Moscow over civilian killings in Ukraine. Germany’s 10-year bond yield, the benchmark of the bloc, rose 3.5 basis points (bps) to 0.555%.

“We think that market rate expectations will continue to be dominated by the Federal Reserve, as the ECB is still pursuing its policy of maximum optionality,” Chris Attfield, European rates strategist at HSBC, said. “That means there is minimal guidance for the market. There’s a vacuum at the moment, which is being filled by hawkish expectations about the Fed’s monetary stance.”

The US 10-year Treasury yield rose 3 bps to 2.4431% after ticking up on Monday, with the 2-year/10-year yield curve still inverted.

Some analysts flagged recently that Bund yields are unlikely to rise above 0.5%-0.6% until it is clear how the European Central Bank will face surging inflation and the risk of economic slowdown due to the war.

Euro zone bond yields rise, wary on negotiations over Ukraine

“It seems that investors are cautiously increasing Bund duration at 10y yields above 0.5%,” Commerzbank analysts said in a research note. “This fits our narrative of supportive factors gaining the upper hand, with plenty of backflows looking for opportunities in a market that is trading out of a short base and discounting fairly aggressive rate hikes,” they added.

Investors were concerned about the inversion of the 2-year/10-year yield curve, which is seen as a precursor for a recession in the next two years.

However, several analysts said they were extremely cautious in using the 2y-10y spread alone as an argument for rising recession risks.

“No matter what the curves do, we don’t see recession risks in the future, but an expansionary cycle driven by the reopening of the economies and more public spending on energy and defence,” Yannick Lopez, head of fixed income at OFI Asset Management, said.

Italy’s government bond prices were underperforming their peers, with the closely watched spread between Italian and German 10-year yields widening 3 bps to 158.

Italy’s 10-year bond yield rose 5 bps to 2.13%. The European Union will raise 6 billion euros from the sale of a new, 20-year green bond on Tuesday.