(Bloomberg) -- German bonds tumbled to send the government’s benchmark borrowing costs to the highest in over a decade, as investors bet on European interest rates remaining elevated for longer.

The yield on 10-year securities jumped eight basis points to 2.78%, the highest since 2011. The latest move up follows hawkish messaging by the Federal Reserve on Wednesday and strong US labor data Thursday, leading traders to expect the European Central Bank will keep policy tight for years.

The Fed and Bank of England paused in their aggressive rate hiking cycles this week but both said rates would remain at a “restrictive” level. That outlook is feeding though to the euro area, where money markets are betting on only two quarter-point ECB rate cuts next year, the fewest priced in a month.

“While most seem to agree that interest rates have either reached their top or are very close, there is no urgency to hunt for yield or to lock in lower yields further out on the curve,” said Christoph Rieger, head of fixed-rate strategy at Commerzbank AG. 

Longer maturity bonds were worse hit in a selloff across Europe. Rieger flags that investors can instead achieve risk-free returns close to 4% in short-end debt. 

Further out, the market is pricing the ECB’s deposit rate, currently at 4%, will remain above 3% over the next couple of years, a sea-change for a region accustomed to years of ultra-loose policy.

--With assistance from James Hirai.

(Adds quote in the third paragraph and updates prices.)

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