German Bund Yields Below Recent 10-Month Highs

Germany’s 10-year Bund yield settled at 2.85%, retreating from near 10-month highs, as investors looked ahead to the European Central Bank’s meeting, where policymakers are expected to weigh the deflationary impact of a stronger euro on the policy outlook. The euro hit a 4½-year high above $1.20 at the end of January following US President Trump’s comment that he was unconcerned about the dollar’s recent decline. Meanwhile, ECB policymaker Martin Kocher cautioned that further euro strength could prompt the central bank to resume interest-rate cuts. Money markets reflected the shift in expectations, pricing in roughly a 30% chance of a rate cut by September, up from less than 10% a week ago, while the probability of a rate hike in April 2027 fell to 20%, down from 50%. On the economic data front, Germany’s economy grew 0.3% in Q4 2025, slightly above forecasts of 0.2%, providing modest support for the market outlook.

Germany’s 10-year Bund yield edged down to around 2.85%, retreating from near 10-month highs after ECB policymaker Martin Kocher warned that further euro strength could prompt the central bank to resume interest rate cuts. The Austrian central bank governor described the euro’s recent gains against the dollar as “modest” and said they did not yet warrant a policy response. However, he noted the ECB may need to act if additional appreciation became large enough to push down inflation projections. Markets slightly increased expectations for a summer easing move, with the implied probability of a 25-basis-point cut in July rising to around 25%, up from roughly 15% earlier. The euro climbed above $1.20 for the first time since June 2021 after US President Donald Trump said the dollar’s value was “great”, despite sliding to a near four-year low.

Germany’s 10-year Bund yield rose to 2.89%, approaching its highest level since mid-March 2025, as investors digested the recently finalized EU–India landmark trade agreement amid escalating global trade tensions. The deal aims to boost markets amid US tariffs and Chinese export controls, covering a quarter of global GDP and creating a free trade zone spanning two billion people after nearly two decades of negotiations. Markets were also rattled by US President Donald Trump’s threat of higher tariffs on South Korean goods, following similar warnings to Canada and Europe earlier this month. Investors now await key economic releases, including Germany’s flash January inflation and Q4 GDP, as well as the US Federal Reserve’s policy announcement on Wednesday, where rates are expected to remain unchanged. Adding to uncertainty, speculation is rising that a more dovish successor to Fed Chair Jerome Powell could be announced this week.