Bund Yields Near 15-Year High as ECB Rate Hike Bets Rise

German 10-year Bund yields rose to 3.25%, remaining close to the 15-year high of 3.275% touched last week, as investors continued to assess inflation risks stemming from the US-Israeli war with Iran and elevated levels of government spending. Meanwhile, oil prices remained subdued after US threats of an “economic D-Day” of sanctions on Iran had little impact. Brent nevertheless remained above $90 a barrel, with markets facing risks of further supply constraints for refined fuels, low gas inventories and a prolonged conflict that could extend beyond November's US midterm elections, prompting traders to increase their bets on ECB rate hikes. Money markets now price more than 40 basis points of additional ECB tightening this year, with the first move fully priced in as soon as next month. Resilient economic growth has also pushed up bond yields and rate-hike expectations. Data on Tuesday showed the German economy grew 0.3% in Q2 2026, above the preliminary estimate of 0.2%.

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.