Bund Yields Rise on Fed, ECB Rate Hike Expectations

German 10-year Bund yields climbed to 3.04%, tracking US Treasury yields higher after stronger-than-expected US jobs data reinforced expectations of tighter Federal Reserve monetary policy. Nonfarm payrolls surged by 172,000 in May, nearly double the forecasted 85,000, leading markets to fully price in a Fed rate hike by year-end. Investors also prepared for a likely European Central Bank rate hike next week, while monitoring potential progress in Middle East resolution efforts. Markets now anticipate a near-certain 25-basis-point ECB rate increase at the June 11 meeting, with two or possibly three hikes expected this year. This comes as euro-area inflation rose to 3.2% in May, its highest in over two and a half years. Uncertainty remains, however, after Eurozone GDP figures were revised to show a contraction in Q1 2026—the first since late 2022 and the steepest since mid-2020.

German 10-year Bund yields hovered just above 3% as investors anticipated a likely European Central Bank rate hike next week, while cautiously hoping for progress in Middle East peace efforts. Markets now expect a near-certain 25-basis-point ECB rate increase at the June 11 meeting, with two or possibly three hikes projected for this year. This comes after euro-area inflation reached 3.2% in May, its highest in over two and a half years,with core and services inflation rising, indicating broader price pressures beyond energy. Yet, uncertainty persists as policymakers weigh high inflation against weak economic growth. One of the ECB’s most hawkish members, Isabel Schnabel, warned on Monday that it is too early to determine the exact number of rate hikes. Meanwhile, US-Iran talks continued, and military clashes between Lebanon and Israel persisted despite a pending US-brokered ceasefire.

German 10-year Bund yields eased toward 3% as a renewed decline in oil prices helped alleviate energy-driven inflationary pressures, slightly tempering expectations for further central bank rate hikes. The shift came as reports emerged that Israel and Lebanon had agreed to implement a ceasefire and end hostilities, raising hopes for a broader de-escalation in the US-Israeli conflict with Iran. However, Tehran denied any recent progress in talks with Washington over an interim peace deal, and fighting continued in Lebanon. On the monetary policy front, markets are now pricing in a near-certain 25-basis-point interest rate hike by the European Central Bank at its June 11 meeting, with two or possibly three increases expected by the end of the year. This comes after euro-area inflation hit 3.2% in May, its highest in over two and a half years, while core inflation reached 2.5% and services inflation climbed to 3.5%, signaling broader price pressures.