Germany’s Bund Yields Ease but Post Biggest Monthly Jump Since 2022

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.

Germany’s 10-year Bund yield was poised to end March at 3%, close to its highest level since May 2011, after surging 36 basis points, marking the largest monthly rise since late 2022. Investors intensified their focus on the economic impact of the prolonged Middle East conflict, now in its fifth week, which has sustained elevated oil prices. Adding to the uncertainty, reports suggested that US President Donald Trump was willing to halt the US military campaign against Iran, even if the Strait of Hormuz remained blocked. The surge in energy prices pushed Europe’s inflation higher, with Germany’s EU-harmonized inflation rate climbing to 2.8% in March. Markets, in response, abandoned expectations of an ECB rate cut, now anticipating at least two interest rate hikes in 2026. While ECB’s François Villeroy de Galhau reaffirmed the bank’s commitment to combating energy-driven inflation, he cautioned that discussions on the timing of rate adjustments were still premature.

Germany’s 10-year Bund yield hovered around 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 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.