Bund Yields Surge Amid Middle East Tensions, Inflation Fears

Germany’s 10-year Bund yield rose above 3%, nearing 15-year highs, as prolonged Middle East conflict and rising oil prices fueled inflation concerns. The US asserted Iran’s eagerness for a deal while deploying additional troops to the region, contrasting with Iran’s stance, rejecting negotiations and demanding control over the Strait of Hormuz. Investors now anticipate two to three ECB rate hikes by year-end, after ECB President Christine Lagarde signaled readiness to act "at any meeting" to counter energy-driven inflation risks. Meanwhile, German consumer confidence fell to a two-year low heading into April, highlighting the conflict’s economic impact.

Germany’s 10-year Bund yield slipped to 2.97%, pulling back from near 15-year highs, as optimism grew over potential de-escalation in the Middle East. Reports of a US 15-point peace proposal to Tehran, despite Iran’s denial of negotiations, helped push Brent crude below $100 a barrel, reducing concerns over energy-driven inflation. Investors scaled back rate hike bets, with markets now pricing in just two ECB increases by year-end, down from three. ECB President Christine Lagarde emphasized the bank’s readiness to act "at any meeting" if energy price shocks threaten wider inflation. Meanwhile, German business morale plunged in March to its lowest level in over a year, underscoring the conflict’s toll on economic sentiment.

Germany’s 10-year Bund yield settled at 3%, pulling back from Monday’s 3.08%, its highest since June 2011, as Middle East uncertainty and weaker-than-expected PMI data dominated market sentiment. President Trump postponed US strikes on Iran, citing "positive talks", a claim Tehran dismissed, though reports hinted at indirect negotiations. However, an Israeli official ruled out a ceasefire, stating Iran shows no willingness to compromise, while Israel’s Defense Minister vowed to "continue striking Iran with full force." On the economic front, Eurozone business activity hit a ten-month low in March, with costs rising at the fastest pace in over three years due to soaring energy prices and war-driven supply chain disruptions. Markets are firming up expectations for ECB rate hikes, despite the central bank’s recent decision to hold rates while raising inflation forecasts and cutting growth projections amid escalating regional risks.