Bund Yields Near Two-Year High as Inflation Fears Rise

Germany’s 10-year Bund yield climbed to 2.93%, approaching last week’s over two-year high of 2.99%, as renewed attacks in the Middle East reignited inflation concerns ahead of key central bank meetings. Oil resumed its rally after Israel struck Iran’s Asaluyeh refinery and the South Pars gas field, while Iran’s Revolutionary Guard issued evacuation warnings for oil facilities in Saudi Arabia, the UAE, and Qatar. Markets are now anticipating tighter monetary policy from global central banks in response to rising energy prices and mounting inflationary pressures. The ECB, Federal Reserve, and Bank of England are expected to hold interest rates steady this week, but investors are closely watching for signals on how policymakers will address the economic impact of the escalating conflict.

Germany’s 10-year Bund yield declined to 2.9%, below Friday’s near two-year high of 2.99%. Investors paused ahead of a critical week of central bank decisions, even as rising oil prices stoked inflation concerns. The escalation of the US-Israeli conflict with Iran has driven energy prices higher, prompting markets to price in a tighter monetary policy from the European Central Bank by year-end. Money markets now fully anticipate an ECB rate hike by July, with an 85% chance of a second increase by December. This week, policymakers at the ECB, Federal Reserve, and Bank of England are widely expected to keep interest rates unchanged, as investors seek guidance on how central banks will respond to the economic fallout from the conflict. Meanwhile, German investor morale collapsed in March, reflecting fears that surging prices could undermine the country’s fragile recovery.

Germany’s 10-year Bund yield held above 2.9%, close to its highest level since October 2023, as escalating tensions in the Middle East heightened inflation concerns and reinforced expectations of further tightening by the European Central Bank ahead of a busy week of global central bank meetings. Oil prices stayed above $100 per barrel, up more than 40% this month, after Iran halted shipments through the Strait of Hormuz in retaliation for US-Israeli air strikes. Israeli officials warned the conflict could last “several more long weeks,” while US President Donald Trump said Tehran is “not ready” to reach a deal. Major central banks, including the ECB and the Fed, are widely expected to keep interest rates unchanged this week. Investors will focus on policymakers’ guidance on how they may respond to the economic fallout from the conflict. Money markets are currently fully pricing in an ECB rate hike by July, with roughly an 85% probability of another increase by the end of the year.