Germany 10Y Bond Yield Hits 4-week Low

Germany’s 10-year bund yield fell to 3.05% as signs of progress in Iran peace talks eased government borrowing costs from multi-year highs. The yield had reached a 15-year peak of 3.2% on Tuesday amid expectations of interest rate hikes following the Iran conflict’s disruption of energy markets. However, crude oil prices dropped from four-year highs, as both Iran and the US reported headway in negotiations. US Senator Marco Rubio noted "some good signs" in the talks, though Tehran’s uranium stockpile and control over the Strait of Hormuz remain key obstacles. Traders now fully price in two European Central Bank rate hikes this year, with a 60% probability of a third. On the macro front, German consumer sentiment improved heading into June, defying expectations of a further decline, driven by a rebound in income expectations. Business confidence also edged higher in May, recovering from April’s six-year low, while a separate report confirmed 0.3% GDP growth in Q1 2026.

Germany’s 10-year bund yield erased early losses to edge up to 3.1% as concerns that the Middle East conflict could remain deadlocked pushed oil prices higher and added to inflationary pressures. Iran’s Supreme Leader has reportedly ordered near weapons-grade uranium to remain in the country, hardening Tehran’s stance on a key US demand at peace talks. Investors also assessed S&P Global flash PMI data showing the euro area economy unexpectedly contracted in May at the fastest pace since late 2023, with Germany’s output falling for a second consecutive month. A war-driven surge in living costs suppressed service demand and pushed input price inflation to a three-year high, while S&P Global warned that inflation could near 4% in the coming months. The European Central Bank, which held interest rates steady last month but discussed a potential increase, has signaled both publicly and privately that a rate hike may come as soon as June.

Germany’s 10-year bund yield slipped below 3.1%, retreating from 15-year highs, as investors assessed S&P Global flash PMI data and Middle East developments. The survey showed the euro area economy unexpectedly contracted in May at the fastest pace since late 2023, with Germany’s output falling for a second consecutive month. A war-driven surge in living costs suppressed service demand and pushed input price inflation to a three-year high. Meanwhile, S&P Global warned the data suggests inflation could near 4% in the coming months. The European Central Bank, which held interest rates steady last month but discussed a potential increase, has signaled both publicly and privately that a rate hike may come as soon as June. Elsewhere, Brent crude prices remained elevated after President Donald Trump said Iran negotiations were in the "final stages" but threatened renewed attacks if Tehran rejected his terms.