Bund Yields Little Changed as Oil Prices Ease, Geopolitical Risks Persist

German 10-year Bund yields held at 3.02%, slightly lower as oil prices dipped but remained near multi-year highs. Ongoing Iran-US tensions and concerns about prolonged conflict fueling inflation kept markets on edge. Iran claimed it targeted a US command ship in the Gulf of Oman, while the Republican-led House voted to halt US military action against Iran, marking a rare challenge to President Trump’s administration. Israel and Lebanon also agreed to a conditional ceasefire, though Prime Minister Netanyahu warned of potential further strikes. On monetary policy, markets are pricing in a near-certain 25-basis-point ECB rate hike at the June 11 meeting, with two or possibly three increases expected this year. This comes after Euro-area inflation hit 3.2% in May, its highest in over two and a half years, driven by surging energy costs tied to the conflict. Core inflation also rose to 2.5%, and services inflation reached 3.5%, signaling broadening price pressures beyond energy.

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.