Bund Yield Rebounds to 2.98% on Ceasefire, Oil Surge

Germany’s 10-year Bund yield climbed back to 2.98% on Thursday, reversing a 14-basis-point drop from the previous session, as growing doubts over the fragile US-Iran ceasefire drove oil prices sharply higher. The surge in energy costs reignited fears of inflation, especially after Israel’s deadliest airstrikes on Lebanon yet, killing hundreds and triggering Iranian threats of retaliation. Tehran dismissed further peace talks with the US, while the ongoing Strait of Hormuz blockade strained the already unstable truce. US President Donald Trump added to tensions by insisting US forces would stay near Iran until a “real agreement” is reached. Markets responded by pricing in tighter monetary policy, with traders now expecting at least two ECB rate hikes by the end of 2026.

Germany’s 10-year Bund yield dropped 15 basis points to 2.93% as oil and European gas prices tumbled following a US-Iran ceasefire agreement. The deal, which halts the US-Israel military campaign in exchange for Iran reopening the Strait of Hormuz, has fueled hopes of a temporary de-escalation in the Middle East, though deeper tensions persist. The easing of geopolitical risks prompted investors to scale back expectations for European Central Bank (ECB) rate hikes, effectively removing one hike from their 2026 forecasts. Markets now anticipate two rate increases this year, down from previous projections.

Germany’s 10-year Bund yield rose toward 3.1% after the extended Easter break, hovering near multi-year highs reached at the end of last month, as markets await US President Donald Trump’s deadline for Iran to reopen the Strait of Hormuz and agree to a ceasefire, or get "taken out". Investors have adopted a "wait-and-see" stance ahead of the deadline, with Trump’s threat of massive strikes on Iranian infrastructure driving energy prices higher and leading to a reassessment of central bank policies, with markets now pricing in three interest rate hikes by the European Central Bank this year. Speaking to the Wall Street Journal, ECB policymaker Pierre Wunsch suggested the bank may need to raise rates multiple times, starting this month, if the energy fallout from the Middle East war persists.