German Bund Yields Hold Near 15-Year Highs Amid Inflation Fears

Germany’s 10-year Bund yield steadied just below 3%, lingering near 15-year highs as stubborn inflation concerns kept borrowing costs elevated. Investors remained focused on escalating Middle East tensions and the European Central Bank’s cautious approach, while digesting the latest German investor sentiment data. US President Donald Trump confirmed that the two-week ceasefire between Washington and Tehran will expire on Wednesday evening, while Iran denied reports that a delegation had traveled to Pakistan for talks with the US, contradicting earlier claims. Meanwhile, ECB President Christine Lagarde warned of "deeply uncertain" economic prospects, citing energy supply disruptions from the Middle East conflict as a major risk, though she noted that energy prices have yet to escalate to the ECB’s worst-case projections. On the economic data front, Germany’s ZEW economic sentiment plunged to its lowest since late 2022, signaling deepening pessimism.

Germany’s 10-year Bund yield hovered around 3%, staying close to the 15-year highs reached earlier this month, as persistent inflation concerns continued to anchor borrowing costs at elevated levels. Tensions between the US and Iran escalated after the US Navy fired upon and boarded an Iranian-flagged cargo ship. This reversal came swiftly: on Friday, Iran had stated the strait would remain fully open to commercial traffic during the 10-day ceasefire between Israel and Lebanon. Also, there is no clarity on whether US and Iranian officials will meet ahead of the expiry of the 14-day ceasefire between the two countries on Tuesday. Meanwhile, the ECB is set to decide later this month, with no changes in borrowing costs expected at this meeting. Instead, focus remains on the June meeting, although the evolving situation in the Middle East could alter the outlook. On Friday, the IMF said it expects the ECB to raise rates by around 50bps in 2026 to maintain a neutral policy stance.

Germany’s 10-year Bund yield hovered around 3%, staying close to the 15-year highs reached earlier this month, as persistent inflation concerns continued to anchor borrowing costs at elevated levels. Optimism over diplomatic progress in the US–Iran conflict has done little to ease pressure on bond markets, with investors still demanding a higher risk premium amid ongoing uncertainty and expectations of further ECB rate hikes. Reports indicate that the US and Iran are considering a two-week extension of the ceasefire to allow more time for negotiations, with a second round of talks expected soon. This has helped ease oil prices from their recent peaks. Against this backdrop, markets are now pricing in two 25bps rate hikes by the ECB this year, down from three expected just a few weeks ago. Earlier in the week, ECB President Lagarde acknowledged that elevated energy costs have pushed the eurozone off its baseline economic trajectory, but did not indicate any immediate rate action.