Bund Yields Steady Ahead of ECB Meeting

Germany's 10-year Bund yield was little changed at 3.15%, close to a two-month high, as elevated oil prices offset optimism over a possible resumption of US-Iran peace talks following recent escalations. Persistent Middle East tensions continue to raise concerns over potential oil supply disruptions, which could fuel inflation in Europe as a net energy importer. This has reinforced expectations that the European Central Bank will deliver about two more rate hikes by the end of the year, with the first potentially coming as soon as September. Investors are now focused on Thursday's ECB policy meeting. After June's first rate hike in three years, the central bank is widely expected to keep rates unchanged while maintaining a cautious, data-dependent stance.

Germany's 10-year Bund yield rose to 3.15%, close to a two-month high, while the more policy-sensitive two-year Bund yield climbed above 2.8%, its highest level since July 2024. Brent crude touched its highest level in more than a month as escalating US-Iran hostilities threatened oil flows through the Strait of Hormuz, fueling inflation concerns and reinforcing expectations that the European Central Bank will deliver two more rate hikes by early 2027, with the first increase expected as soon as September. Attention now turns to Thursday's ECB policy meeting, where policymakers are widely expected to leave rates unchanged and adopt a wait-and-see stance following June's first rate hike in three years.

Germany's 10-year Bund yield rose to 3.15%, approaching a near two-month high, as surging oil prices reinforced expectations that the European Central Bank will deliver two more rate hikes by early 2027. The two-year Bund yield, which is more sensitive to interest rate expectations, climbed above 2.8% to its highest level since July 2024. Brent crude rose above $90 a barrel, its highest level in over a month, as escalating US-Iran hostilities threatened oil flows through the Strait of Hormuz, fueling inflation concerns. Money markets now price the ECB's deposit rate at 2.70% by December and 2.78% by February 2027, up from the current 2.25%, with the first hike expected as soon as September. Attention now turns to Thursday's ECB policy meeting, where policymakers are widely expected to leave rates unchanged and adopt a wait-and-see stance following June's first rate hike in three years.