Bund Yield Falls as Oil Slump Offsets ECB Rate Expectations

Germany's 10-year Bund yield eased toward 3.1%, tracking a sharp decline in oil prices as optimism grew that the US and Iran could reach a deal to end the conflict and reopen the Strait of Hormuz. Qatar said mediators were making progress in negotiations, while US Treasury Secretary Scott Bessent said an agreement could be reached as early as Tuesday or Wednesday. Despite the decline in yields, stronger-than-expected eurozone data continued to support expectations that the European Central Bank could raise interest rates at its September meeting. The eurozone economy expanded 0.4% in the second quarter, twice the expected pace and the strongest growth since early 2025, while annual inflation accelerated to 2.9% in July, with core and services inflation also picking up.

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.