Bund Yields Surge Above 3% on ECB Rate Hike Expectations

German 10-year Bund yields climbed above 3%, moving further from last week’s two-month low of 2.93%, as renewed US-Iran tensions amplified inflation concerns and reinforced expectations of European Central Bank rate hikes this year. Iran’s Tasnim News Agency reported on Monday that Tehran would halt negotiations with the US over Israeli strikes on Lebanon and fully close the Strait of Hormuz, accusing Washington of "violating the ceasefire on all fronts." The resulting oil price surge led investors to increase bets on ECB rate increases. Markets now anticipate at least two ECB rate hikes in 2026, with an over 90% chance of the first occurring as soon as next week. Investors are also focused on this week’s Eurozone inflation report, following last week’s data showing accelerated EU-harmonized inflation in May for France, Italy, and Spain, while Germany experienced a slowdown.

German 10-year Bund yields climbed back to 2.98% at the start of June, rebounding from two-month lows touched last week, as oil prices surged amid escalating US-Iran tensions. Both nations continued exchanging strikes, with Iran targeting a US airbase linked to an attack on a Sirik Island telecommunications tower, while both sides invoked "self-defense." Over the weekend, they exchanged proposals to revise a draft deal to extend the ceasefire and reopen the Strait of Hormuz, though progress remained unclear. Economically, German retail sales fell in April for a fourth consecutive month, though the decline was slightly less than expected. Markets now await the Eurozone inflation report this week, after May data showed EU-harmonized inflation accelerated in France, Italy, and Spain, while Germany saw a slowdown. ECB minutes also revealed some policymakers would have backed an April rate hike, reinforcing expectations of a 25-basis-point increase at the June 11 meeting.

Germany 10 Year Government Bond Yield decreased to 2.93%, the lowest since April 2026. Over the past 4 weeks, Germany 10Y Bond Yield lost 9.92 basis points, and in the last 12 months, it increased 42.25 basis points.