Bund Yields Steady as ECB Rate Hike Bets Offset Geopolitical Uncertainty

Germany's 10-year Bund yield held near 3.15% on Tuesday as investors weighed a rebound in oil prices against expectations for further European Central Bank tightening. Oil recovered after Monday's sharp selloff, while uncertainty over the US-Iran conflict persisted despite improved sentiment after US President Donald Trump called off planned strikes on Iran, signaling that a diplomatic solution remained possible. Tehran, however, denied any ongoing or planned negotiations. Meanwhile, stronger-than-expected eurozone data reinforced expectations that the ECB could raise interest rates at its next meeting. The bloc's economy expanded 0.4% in the second quarter, twice the consensus forecast and the fastest pace since early 2025. Annual inflation also accelerated to 2.9% in July, with core and services inflation strengthening further.

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.