Bund Yield Back Below 3% as US-Iran Ceasefire Hopes Ease Rate Fears

Germany’s 10-year Bund yield erased early gains to settle just below 3%, as optimism over a potential US-Iran peace deal reduced concerns that persistent inflation could prolong high interest rates. US President Donald Trump confirmed the ceasefire with Iran remains in effect, while Tehran said it is still reviewing a US proposal to end the conflict. Meanwhile, Trump warned the EU that the US would impose "much higher" tariffs on European goods unless the bloc eliminates its tariffs on US products by July 4. Money markets are pricing in at least two ECB rate hikes this year, with a more than 75% chance of a first increase in June. ECB President Christine Lagarde stated on Friday that the central bank is ready to act quickly if necessary and that the euro area’s economic position ahead of the energy shock is stronger than it was before Russia’s invasion of Ukraine.

Germany’s 10-year Bund yield edged higher to 3.02% as markets adopted a more hawkish stance on the European Central Bank’s policy outlook, driven by renewed inflation concerns. Brent crude oil prices climbed back above $100 per barrel following clashes between the US and Iran near the Strait of Hormuz, an escalation that risks further destabilizing a fragile ceasefire. Elsewhere, US President Donald Trump warned the European Union that he would increase tariffs on EU goods to "much higher levels" if the bloc does not reduce its tariffs on US goods to zero by July 4. Money markets are currently pricing in more than 50 basis points of tightening, or at least two rate hikes, by the end of the year, with over a 75% probability of a first increase in June. Several ECB board members have recently warned that the likelihood of a rate hike has risen due to persistent inflation pressures.

Germany’s 10-year Bund yield fell further below 3% as investors dialed back expectations for European Central Bank rate hikes in 2026, with optimism over a potential US-Iran peace deal pushing oil prices lower and easing inflation concerns. Brent crude held just under $100 a barrel after a 10% drop on Wednesday, following Washington’s proposal to Iran, a one-page memorandum outlining steps to reopen the Strait of Hormuz and lift the US blockade on Iranian ports. Investors are now awaiting Tehran’s response. Money markets currently price in about 50 basis points of tightening, or two rate hikes, by year-end, with a 75% probability of a first increase in June. ECB board member Piero Cipollone recently noted that the likelihood of a rate hike had risen due to persistent inflation pressures, echoing similar comments from other policymakers earlier this month.