Bund Yields Steady at Over Two-Week High

German 10-year Bund yields held just above 3.05%, their highest level since May 21, as easing tensions between Israel and Iran temporarily soothed concerns that weekend attacks could disrupt US-led peace efforts in the Middle East. Investors are also focused on the European Central Bank’s policy meeting on Thursday, where policymakers are widely expected to deliver a 25-basis-point rate hike, the first move in a year, after the Israel-Iran conflict triggered an energy crisis and fueled inflationary pressures. Markets will closely watch President Lagarde’s press conference for signals on future moves. The anticipated hike comes as euro-area inflation climbed to the highest in over two and a half years. Money markets are pricing in around 70 basis points of tightening by year-end, suggesting one additional quarter-point increase and a more than 70% probability of a third.

German 10-year Bund yields climbed above 3.05%, reaching their highest since May 21, as traders nearly fully priced in three European Central Bank rate hikes this year. Fading hopes for a swift reopening of the Strait of Hormuz, combined with a over 4% surge in Brent crude after Iran and Israel exchanged missile strikes, fueled the shift. This occurred despite President Trump’s calls for de-escalation. With the ECB policy meeting approaching, a 25 basis point rate increase is widely expected. The move follows euro-area inflation rising to 3.2% in May, its highest in over two and a half years. However, uncertainty remains after Eurozone GDP figures were revised to show a contraction in Q1 2026, the first since late 2022 and the steepest since mid-2020. Money markets now price the ECB deposit rate at around 2.7% by December, up from the current 2%, and indicate a near-certain first rate rise this month, followed by a second in September.

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.