Bund Yield Eases as Falling Oil Prices Temper Rate Expectations

Germany's 10-year Bund yield fell to 3.15% at the start of August as lower oil prices eased inflation concerns and reduced expectations of further interest rate hikes. Crude prices declined after US President Donald Trump said fresh talks with Iran would begin on Monday, easing fears of a broader conflict in the Middle East after days of escalating rhetoric. The move prompted money markets to trim expectations for additional European Central Bank tightening, although a rate hike by September remains largely priced in. Still, stronger-than-expected eurozone data continued to support the case for tighter policy. The bloc's economy grew 0.4% in the second quarter, beating forecasts of 0.2% and marking its fastest expansion since early 2025. Meanwhile, annual inflation accelerated to 2.9% in July, with both core and services inflation also strengthening.

Germany 10 Year Government Bond Yield increased to 3.21%, the highest since May 2011. Over the past 4 weeks, Germany 10Y Bond Yield gained 33.35 basis points, and in the last 12 months, it increased 53.34 basis points.

Germany's 10-year Bund yield climbed toward 3.2%, approaching the 15-year high reached last week and posting a gain of more than 30 basis points in July, its largest monthly increase since March. The policy-sensitive two-year Bund yield also rose over 25 basis points as investors ramped up bets on further ECB rate hikes amid concerns that the Middle East conflict could fuel longer-term inflation. Money markets now fully price the ECB's deposit rate at 2.75% by early 2027, implying two additional rate hikes, with the first potentially as soon as September. Expectations were reinforced by stronger-than-expected eurozone data, with the economy expanding 0.4% in the second quarter, above forecasts of 0.2% and marking its fastest growth since early 2025. Annual inflation also accelerated to 2.9% in July, while core and services inflation strengthened. In the US, the Federal Reserve left interest rates unchanged this week, with markets expecting two rate hikes by June next year.