Germany 10-Year Bund Falls Toward 3-Month Low

Germany’s 10-year Bund yield traded around 2.91%, near three-month lows, as weak economic data and reduced expectations for further ECB rate hikes weighed on sentiment. The ECB raised interest rates by 25 basis points this month, in line with expectations. However, ECB President Christine Lagarde said yesterday that the central bank does not need to respond more aggressively to developments stemming from the Middle East conflict, noting that inflation is expected to return to target over the medium term. Markets have since scaled back some expectations for additional ECB tightening following Lagarde’s remarks, though investors still price in at least one further 25bps hike this year. Meanwhile, weaker economic data reinforced the cautious outlook. Preliminary PMI readings showed that private sector activity in Germany contracted at its fastest pace since 2024, while the broader euro area also remained in contraction territory.

Germany’s 10-year Bund yield fell to 2.924%, moving closer to its lowest level since March 17, as weaker economic data and more cautious signals from the European Central Bank reduced expectations for further rate hikes. June data showed private sector activity in Germany and business activity in France contracted, reinforcing concerns over the region’s growth outlook. ECB President Christine Lagarde also signalled that the central bank sees no need for a stronger policy response to the Iran conflict, noting there is no evidence of an inflation surge that would justify more aggressive tightening. Her comments contrasted with a more hawkish tone from the Federal Reserve, where markets continue to price rate increases. Earlier this month, the ECB raised rates by 25 basis points, but the move had limited market impact as it was widely expected.

Germany’s 10-year Bund yield eased to 2.97% on Monday after rising more than 6 basis points on Friday, as lower oil prices reduced inflation concerns following signs of diplomatic progress between the US and Iran. Negotiators from both sides agreed on a roadmap toward a potential final agreement, supporting hopes of easing tensions in the Middle East. Oil markets reacted positively to the developments, despite President Donald Trump warning of possible military action if Hezbollah continues attacks on Israel. The US and Iran also established a communication channel aimed at preventing incidents and miscalculations, while discussions continue around restoring safe commercial shipping through the Strait of Hormuz. Meanwhile, money markets are pricing in at least one more European Central Bank rate increase this year, following the ECB’s recent 25 basis point hike that raised the deposit rate to 2.25%, marking the first increase since 2023.