Bund Yields Tick Higher, but ECB Outlook Weighs

Germany’s 10-year Bund yields climbed to 2.95%, a near two-week high, tracking US Treasury yields as investors prepared for US jobs data later in the day. However, gains were limited by softer-than-expected Eurozone inflation data and reduced expectations for aggressive ECB rate hikes this year. Wednesday’s figures showed both headline and core inflation rates had fallen more than expected in June, to 2.8% and 2.4%, respectively. At the ECB’s Sintra Forum, President Christine Lagarde told CNBC that risks to eurozone inflation and growth are now more balanced than a few weeks ago, citing the recent drop in oil prices. The shift follows the ECB’s decision three weeks earlier to become the first G7 central bank to raise rates after the Iran war, driven by concerns over inflation spreading. Since then, oil prices have fallen sharply on US-Iran peace hopes, with Qatar scheduling the next indirect talks soon.

Germany’s 10-year Bund yields climbed above 2.9%, rebounding from a four-month low and following US Treasury yields higher. This came after the latest JOLTS report revealed job openings at a two-year high, while analysts anticipate another strong June non-farm payrolls report, reinforcing expectations that the Federal Reserve will raise interest rates this year. In Europe, investors are focused on the ECB’s Sintra Forum and inflation updates from major economies. Today’s panel with ECB President Christine Lagarde and new Fed Chair Kevin Warsh is highly anticipated, as markets seek insights into economic assessments and policy directions. Recent inflation data in Europe showed easing price pressures, offering some relief to ECB policymakers. Additionally, investors are monitoring US-Iran peace talks in Qatar, hoping for progress toward a lasting ceasefire, though direct negotiations remain unlikely.

Germany’s 10-year Bund yields were slightly higher at 2.88% at the end of June, trading just above a four-month low. They were on track for a 5bps monthly decline and a 12bps quarterly fall, as oil prices pulled back from recent peaks after the US-Iran ceasefire reopened the Strait of Hormuz, easing inflation concerns. This shift has prompted markets to temper expectations for the extent of interest rate hikes by the ECB and Bank of England. At the same time, the Federal Reserve’s hawkish stance hinted at potential US rate increases this year. Investors also focused on the ECB’s Sintra Forum and inflation data from Europe’s major economies. The highlight was Wednesday’s panel featuring ECB President Christine Lagarde, as markets sought insights into economic assessments and policy directions. Inflation data indicated easing price pressures in Germany, France and Italy in June, while Spain’s rates stayed near two-year highs.