Bund Yield Eases on US-Iran Deal Hopes

Germany’s 10-year Bund yield extended its decline below 3% as investors scaled back expectations for ECB rate hikes in 2026, with optimism over a potential US-Iran peace deal pushing oil prices lower and easing inflation concerns. Money markets now expect the ECB’s deposit facility rate to reach around 2.6% by December, reflecting two fully priced hikes and a possible third, with a 75% chance of a first rate increase in June. On Wednesday, ECB board member Piero Cipollone said the likelihood of a rate hike had risen due to high inflation pressures, echoing similar remarks from other policymakers earlier this month. According to Axios, the White House is close to a one-page Memorandum of Understanding with Iran to end the conflict and begin nuclear negotiations, the closest the parties have been to a deal since the conflict started. Tehran is expected to respond within 48 hours, though no agreement is finalized.

Germany’s 10-year Bund yield fell below 3% as growing optimism over a potential US-Iran agreement drove oil prices lower, easing inflation pressures. US President Donald Trump announced a pause in "Project Freedom," the Strait of Hormuz escort operation, citing "great progress" in mediated talks with Iran. However, he stressed that the US blockade on Iranian ports would "remain in full force and effect." Despite the pullback, Bund yields stay close to 15-year highs, with investors still pricing in potential European Central Bank rate hikes due to the Middle East conflict’s persistent impact on inflation. Money markets now expect the ECB’s deposit facility rate to reach around 2.6% by December, reflecting two fully priced hikes and a possible third, with a 75% probability of a first rate increase in June.

Germany’s 10-year Bund yield held above 3.05%, near multi-year highs, as investors bet on imminent ECB rate hikes to combat inflation. The rise reflects ongoing global energy disruptions, with oil prices at four-year peaks and the Strait of Hormuz still closed due to the US-Israeli conflict with Iran. Markets now price in over three ECB hikes this year. Though the ECB kept rates unchanged at its last meeting, it left the door open for future moves, citing inflation risks and growth concerns. ECB President Christine Lagarde confirmed the unanimous decision to hold, though a hike was debated. Meanwhile, officials Joachim Nagel, Madis Müller, and Peter Kazimir signaled potential tightening as early as June, warning of worsening inflation and persistent price pressures.