Bund Yields Edge Higher as Focus Shifts to US Jobs Data

Germany’s 10-year Bund yield edged higher to 3.36% on Friday after falling in the previous session, as investors awaited fresh direction from US employment data due later in the day, while attention gradually shifted towards the European Central Bank’s September 10 meeting. The global bond market found some relief on Thursday after Federal Reserve Governor Christopher Waller eased expectations of a near-term Fed rate hike, sending the dollar lower, while the recent rally in oil prices also lost some momentum. Bond yields, nevertheless, remain elevated amid persistent concerns over energy-driven inflation, higher interest rates and fiscal sustainability in countries including France and the UK. Money markets continue to fully price in a 25-basis-point ECB rate hike to 2.5% next week. Markets are also pricing in an almost 100% probability of the deposit rate reaching 3% by June 2027, implying two further rate increases by mid-2027.

Eurozone government bonds snapped a six-day losing streak on Thursday, pushing yields down from multi-year highs as easing energy prices helped alleviate inflation concerns and led markets to marginally scale back expectations for European Central Bank rate hikes. Germany’s 10-year Bund yield eased to 3.36%, just below Wednesday’s 15-year high of 3.3951%, as Brent crude retreated from six-week highs and natural gas prices fell from their highest level since January 2023. The declines came after US President Donald Trump said the renewed US military campaign in Iran would not last long. Bond yields nevertheless remain elevated amid concerns over energy-driven inflation, higher interest rates and fiscal sustainability in countries including France and the UK. Money markets continue to fully price in a 25-basis-point ECB rate hike to 2.5% next week. Markets are also pricing in an almost 100% probability of a 3% deposit rate by June 2027, implying two further rate increases by mid-2027.

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.