Germany 10Y Bond Yield Hits Near 15-year High

Germany’s 10-year bund yield erased early losses to edge up to 3.1% as concerns that the Middle East conflict could remain deadlocked pushed oil prices higher and added to inflationary pressures. Iran’s Supreme Leader has reportedly ordered near weapons-grade uranium to remain in the country, hardening Tehran’s stance on a key US demand at peace talks. Investors also assessed S&P Global flash PMI data showing the euro area economy unexpectedly contracted in May at the fastest pace since late 2023, with Germany’s output falling for a second consecutive month. A war-driven surge in living costs suppressed service demand and pushed input price inflation to a three-year high, while S&P Global warned that inflation could near 4% in the coming months. The European Central Bank, which held interest rates steady last month but discussed a potential increase, has signaled both publicly and privately that a rate hike may come as soon as June.

Germany’s 10-year bund yield slipped below 3.1%, retreating from 15-year highs, as investors assessed S&P Global flash PMI data and Middle East developments. The survey showed the euro area economy unexpectedly contracted in May at the fastest pace since late 2023, with Germany’s output falling for a second consecutive month. A war-driven surge in living costs suppressed service demand and pushed input price inflation to a three-year high. Meanwhile, S&P Global warned the data suggests inflation could near 4% in the coming months. The European Central Bank, which held interest rates steady last month but discussed a potential increase, has signaled both publicly and privately that a rate hike may come as soon as June. Elsewhere, Brent crude prices remained elevated after President Donald Trump said Iran negotiations were in the "final stages" but threatened renewed attacks if Tehran rejected his terms.

Germany’s 10-year bund yield remained close to 3.2%, a 15-year high, as investors anticipated that sustained high energy prices would drive broader inflation and prompt further central bank rate hikes. Brent crude stayed near a four-year high as US-Iran talks to reopen the Strait of Hormuz and end the war remained stalled. Expectations for European Central Bank tightening have risen in recent weeks, with markets assigning an over 80% probability to a 25-basis-point rate increase next month, with two more likely by year-end. Recent data highlighted the economic strain: Eurozone growth slowed to 0.1% in Q1 2026, the weakest since Q2 2025, due to Middle East-related energy constraints, while inflation climbed to 3% in April, the highest since September 2023 and well above the ECB’s 2% target. Investors now await Thursday’s flash S&P Global PMI surveys for further policy signals.