Bund Yields Dip on Oil Decline

German 10-year Bund yields hovered at 2.95%, near the previous week’s two-month low of 2.93%, as oil prices dipped and mixed signals emerged on Middle East conflict resolution. US President Donald Trump and Israeli Prime Minister Benjamin Netanyahu offered conflicting accounts of a call about the Lebanon conflict, with Trump urging a ceasefire and Netanyahu’s stance less clear. This follows reports that Iran paused US negotiations, demanding an end to Lebanon clashes, though Trump claimed rapid progress. Investors also processed Eurozone inflation data, which rose to 3.2% in May, the highest since late 2023, with core inflation at 2.5% and services at 3.5%, indicating broadening price pressures. Markets now expect a 25-basis-point ECB rate hike next week, with two increases likely this year, though ECB’s Isabel Schnabel cautioned against overcommitting, while Lithuania’s Gediminas Šimkus sees another hike after June as probable.

German 10-year Bund yields declined to 2.95%, partially reversing Monday’s eight-basis-point increase, as oil prices fell and mixed signals emerged about progress toward ending the Middle East conflict. US President Donald Trump and Israeli Prime Minister Benjamin Netanyahu provided conflicting accounts of a call regarding the Lebanon conflict. Trump stated he had urged both sides to halt fighting, while Netanyahu’s description was less explicit. The confusion follows reports that Iran had paused negotiations with the US, insisting on an end to Lebanon clashes as part of any agreement, though Trump claimed talks with Iran were moving forward rapidly. Investors are also awaiting May’s flash Eurozone inflation data for insights into the economic impact of the Iran conflict. The data precedes next week’s ECB meeting, with money markets pricing in a 95% probability of a 25-basis-point rate hike. A total of two such increases are expected this year, with a possibility of a third.

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.