Bund Yield Dips Toward 2.9%

Germany’s 10-year Bund yield fell toward 2.9%, tracking declines in US Treasury yields and crude prices. While shipping through the Strait of Hormuz remains volatile and short-term oil supply is unpredictable, structural oil supply is expected to rise following OPEC+’s production increase. Softer-than-expected inflation and dovish remarks from ECB President Christine Lagarde last week led markets to reduce expectations for a third ECB rate hike this year, though a second hike remains likely. June’s data showed headline inflation at 2.8% and core inflation at 2.4%, both below forecasts. At the ECB’s Sintra Forum, Lagarde noted a more balanced outlook for euro-area inflation and growth. Additionally, a weaker-than-expected US jobs report further lowered expectations for a near-term Federal Reserve rate hike.

Germany’s 10-year Bund yield rose to 2.93%, marking its first weekly increase since early June with a nearly 9 bp rise. Traders adjusted positions following the initial drop in yields after the US-Iran deal, while rising long-term yields in Japan, driven by concerns over increased spending, also pushed German yields higher. European bond yields remain well below the multi-year peaks seen in May, as falling crude prices, softer-than-expected inflation, and dovish comments from ECB President Christine Lagarde led markets to scale back bets on a third ECB rate hike this year. Money markets still view a second hike as more likely than not. June’s inflation data undershot expectations, with headline inflation easing to 2.8% and core inflation slowing to 2.4%. At the ECB’s Sintra Forum, Lagarde noted that risks to euro-area inflation and growth had become more balanced. Meanwhile, a weaker-than-expected US jobs report further dampened expectations for a near-term Federal Reserve rate hike.

Germany's 10-year Bund yield held just above 2.9%, as investors weighed weaker-than-expected US jobs data, softer Eurozone inflation, and reduced expectations for aggressive ECB rate hikes this year. The US economy added just 57,000 jobs last month, well below forecasts, while the unemployment rate unexpectedly fell to 4.2% as many people left the labor force. In Europe, June inflation came in below expectations, with headline inflation easing to 2.8% and core inflation slowing to 2.4%. Speaking at the ECB's Sintra Forum, President Christine Lagarde said risks to euro-area inflation and growth had become more balanced, citing the recent decline in oil prices. Her comments marked a shift from the ECB's rate hike three weeks earlier, when policymakers cited inflation risks stemming from the Iran conflict. Since then, oil prices have dropped sharply on optimism over a US-Iran peace deal, with Qatar announcing that the next round of indirect talks would be scheduled soon.