Recession fears amid surging energy prices and the rate implications were also behind a surge in British short-dated government bond yields, which hit fresh 14-year highs on Wednesday. Borrowing costs rose on Tuesday after a Purchasing Managers' Index (PMI) survey showed that business activity contracted for a second straight month in August. "Euro zone yields have room to rise as central banks have to deal with inflation first, despite recession risks," said Kaspar Hense, senior portfolio manager at BlueBay Asset Management. "We expect the 10-year Bund yield to top out at around 1.5% with a yield curve inverted and Italian rates at 4%," he added. Germany's 10-year government bond yield rose 6 basis points (bps) to 1.382%, earlier hitting its highest level since July 1 at 1.390%.