Bund Yield Holds Firm on Strong Eurozone Data and ECB Rate Bets

German 10-year Bund yields remained above 3.2%, near its highest level since March 2011, as investors prepare for a more hawkish European Central Bank and await details on sanctions against Iran. The ECB is widely expected to raise interest rates in September, following its June tightening to address inflation pressures caused by the US-Iran conflict and its impact on energy prices. Oil prices remain above $90 per barrel, with risks of further supply constraints for refined fuels, low gas inventories, and a prolonged conflict that could extend beyond the US midterm elections in November. A September rate hike would bring the deposit rate to 2.5%, but expectations for further tightening are growing. Markets now price a 25% chance of the deposit rate reaching 3% by March 2027 and a 60% chance by September. Meanwhile, US Treasury Secretary Bessent will hold a press conference after threatening "the toughest sanctions in history" on Iran, with markets watching for potential China targets.

Germany’s 10-year Bund yield remained near Wednesday’s 3.2625%, the highest since March 2011, as a diplomatic deadlock in the Gulf pushed oil prices higher and stoked inflation concerns. Eurozone inflation remains well above the ECB’s 2% target, keeping the prospect of further monetary tightening in focus after the central bank’s June rate increase. Still, an ECB survey showed inflation expectations among Euro Area consumers fell for the third month in July. Meanwhile, Eurozone business activity continued to expand in August, with manufacturing showing a particularly strong improvement, largely driven by Germany, while services growth remained modest. Investors are also watching global bond markets, which have been volatile despite efforts by the US Treasury to calm them.

Germany’s 10-year Bund yield remained near 3.25%, close to its highest level since March 2011, as investors assessed rising inflation risks, increased public spending and higher energy costs. Oil prices were trading near three-week highs, while European natural gas prices climbed to their highest level since January 2023 amid supply disruptions linked to the Middle East, adding to concerns that inflationary pressures could persist. Eurozone inflation accelerated to 2.9% in July, well above the European Central Bank’s 2% target, strengthening expectations that policymakers may need to maintain a tighter monetary stance for longer. Higher energy costs could further complicate the ECB’s efforts to bring inflation back toward target, particularly if supply disruptions persist. German government bonds also followed the broader global fixed-income selloff, with US Treasury yields rising as the initial support from the Treasury’s expanded buyback programme faded.