Bund Yields Hit 2011 High as ECB Hike Bets Strengthen

Germany’s 10-year Bund yield extended its recent rise to 3.4% on Wednesday, its highest level since April 2011, as rising oil prices fueled inflation concerns and boosted rate-hike bets. Brent crude hit fresh six-week highs, as traders weighed persistent Middle East supply risks against signs that crude was still reaching the market. Eurozone inflation data released earlier this week showed price growth at its highest level in nearly three years, strengthening expectations for further ECB tightening. Money markets now price in almost a 100% chance of a rate hike next week, with a strong probability of another increase by year-end. ECB policymakers Olli Rehn and Martin Kocher warned that prolonged conflict and rising inflation risks could warrant further tightening. In the US, markets are pricing in a 66% probability of a September rate hike, following hawkish remarks from Fed Chair Kevin Warsh and this week’s rise in oil prices.

Germany 10 Year Government Bond Yield increased to 3.38%, the highest since April 2011. Over the past 4 weeks, Germany 10Y Bond Yield gained 22.74 basis points, and in the last 12 months, it increased 63.87 basis points.

European government bonds extended their sell-off in early September as investors digested fresh inflation data that strengthened the case for another ECB rate hike this month, with the Iran war continuing to put upward pressure on prices. Germany’s 10-year Bund yield touched 3.38%, its highest since April 2011, while French yields reached their highest since November 2008. Italian and Spanish yields also climbed to near three-year highs. Eurozone inflation accelerated to 3.3% in August, its highest since September 2023 and well above the ECB’s 2% target, driven by surging energy prices. Markets now price the ECB’s deposit rate at around 2.70% by December, implying an 80% chance of a second hike following an expected September move. ECB policymakers Olli Rehn and Martin Kocher warned that prolonged conflict and rising inflation risks could require further tightening. Meanwhile, hawkish comments from Fed Chair Warsh prompted markets to price in a 68% probability of a September Fed hike.