Bund Yields Near 15-Year High on ECB Rate Hike Bets

Germany’s 10-year Bund yield rose to 3.1%, nearing its highest level since May 2011, as traders bet on European Central Bank rate hikes amid concerns over the fragile US-Iran ceasefire and persistent inflation. Brent crude oil prices exceeded $105 a barrel after US President Trump dismissed Iran’s latest peace proposal, calling it a “piece of garbage” and admitting he “didn’t even finish reading it.” Fears of a prolonged economic impact from the Middle East conflict have led investors to price in three ECB rate hikes by year-end, with an over 86% chance of the first increase in June. Meanwhile, final data showed Germany’s inflation rate climbed to 2.9% in April, the highest since January 2024, fueled by rising energy costs.

Germany’s 10-year Bund yield increased to 3.02% as oil prices climbed due to heightened tensions between the US and Iran, amplifying inflation concerns and strengthening expectations of further ECB rate hikes. Brent crude exceeded $105 per barrel after President Trump rejected Iran’s latest peace proposal as “totally unacceptable.” The future of the Strait of Hormuz remains unclear, following reports that Iran had proposed diluting some enriched uranium and transferring the rest to a third country, though Iran disputed this claim. Money markets are now factoring in at least two ECB rate increases this year, with a probability of over 78% for the first hike in June. ECB President Christine Lagarde emphasized on Friday that the central bank is prepared to act decisively if needed, adding that the euro area’s economic position is stronger now than it was before Russia’s invasion of Ukraine.

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.