Bund Yield Remains High as Middle East Tensions Fuel Rate Hike Bets

Germany’s 10-year Bund yield held steady at 3.1%, near its highest since May 2011, and was set to end March up more than 40 basis points. Investors remained on edge over the economic impact of the protracted Middle East conflict, with reports of US troop preparations for a ground operation overshadowing Washington’s claims of progress in Iran negotiations. Economic data added to the hawkish shift: German regional CPI signaled accelerating inflation, while the Eurozone business survey revealed a sharp drop in sentiment as inflation expectations surged. Markets have dramatically adjusted ECB rate expectations, now pricing in at least two hikes in 2026, with a possible third, abandoning prior bets on a 40% chance of a cut. On Monday, French central bank chief François Villeroy de Galhau reaffirmed the ECB’s commitment to preventing energy-driven inflation from broadening, but noted it was “premature” to specify timing for rate moves.

Germany’s 10-year Bund yield climbed above 3.1%, its highest since May 2011, and is on track to end March nearly 50 basis points higher. The Iran conflict has driven energy prices up and prompted investors to abandon bets on ECB rate cuts, with traders now pricing in at least two hikes in 2026 and a possible third. The geopolitical standoff intensified as US President Donald Trump extended his deadline for Iran to reopen the Strait of Hormuz or face strikes, while reports from Washington and Tehran offered conflicting accounts of progress in negotiations. Despite German Foreign Minister Johann Wadephul confirming indirect contacts and upcoming direct talks in Pakistan, markets remain skeptical of a near-term resolution, viewing the delay as a tactic to allow further troop deployments. Investors also digested fresh data underscoring growing inflationary risks across Europe, with Spain’s HICP inflation reading jumping to 3.3% in March, driven by surging fuel and lubricant costs.

Germany 10 Year Government Bond Yield increased to 3.08%, the highest since June 2011. Over the past 4 weeks, Germany 10Y Bond Yield gained 42.17 basis points, and in the last 12 months, it increased 30.09 basis points.