Germany 10Y Bond Yield Hits 39-week High

Germany’s 10-year Bund yield climbed back above 3%, nearing its highest level since May 2011, as escalating Middle East tensions weighed on European bonds. President Donald Trump’s prime-time address lacking a clear timeline for resolving the conflict fueled the sell-off. While Trump indicated the US operation was nearly complete, his pledge of more aggressive actions, including potential strikes on electrical plants in the coming weeks, deepened market unease. With no new rationale for the war and mounting uncertainty, inflation concerns have intensified, prompting a reassessment of the European Central Bank’s policy outlook. Investors now expect three interest rate hikes in 2026, up from two just a day earlier. Before the conflict, markets had anticipated no hikes at all, with some even betting on monetary easing.

Germany’s 10-year Bund yield fell to 2.96%, retreating from recent multi-year highs, as growing hopes for a swift end to the Iran conflict eased concerns over soaring energy prices and aggressive ECB rate hikes. US President Donald Trump’s statement that the US could withdraw from Iran "in two or three weeks," with or without a deal, added to the cautious optimism, though Washington’s shifting timelines and mixed signals have kept uncertainty alive in the war’s fifth week. Markets scaled back ECB tightening bets, now pricing in just two rate hikes by December, down from three expected earlier this week. Before the conflict, investors had anticipated no hikes in 2026, with a slight chance of monetary easing.

Germany’s 10-year Bund yield eased to 3%, falling back from multi-year highs, as investors reassessed economic growth risks linked to the energy shock from the Middle East conflict. However, yields remained on track to end March up 37 basis points, the largest monthly increase since late 2022, amid a broad inflation spike. Soaring energy costs pushed the Eurozone’s inflation rate to 2.5% and Germany’s EU-harmonized rate to 2.8%, both exceeding the ECB’s 2% target and marking the highest readings in over a year. The data prompted markets to ditch rate cut expectations, now anticipating at least two ECB hikes by 2026. While ECB’s François Villeroy de Galhau underscored the bank’s determination to curb inflation, he stressed that timing discussions for rate moves were still premature.