Bund Yields Rise as AfD Win and ECB Take Center Stage

Germany’s 10-year Bund yield slipped to 3.45%, near its lowest level since September 9, as investors awaited US inflation data for clues on the Federal Reserve’s rate path. September’s CPI, the final reading before the Fed’s October meeting, is expected to show annual inflation rising to 3.6%. Bond markets have shown tentative signs of stabilization in recent days, with volatility easing following a global sell-off in late September and early October. Concerns over surging energy prices, persistent inflation and rising borrowing costs fueled the earlier surge in yields, while fiscal pressures added to the strain on more heavily indebted countries. Meanwhile, ECB President Christine Lagarde said elevated energy-driven inflation has yet to spread across the euro-area economy, supporting a wait-and-see approach. However, persistent inflation surprises and the ongoing US-Iran conflict have prompted markets to price in another ECB rate hike in December, following two increases this year.

Germany’s 10-year Bund yield fell below 3.45% to its lowest level since September 9, tracking US Treasury yields lower as a global equity selloff drove investors towards safe-haven government bonds. Investors are becoming increasingly cautious about the AI trade, one of this year’s strongest-performing market themes, as companies prepare to report earnings. Intensifying competition, stretched valuations and concerns over surging AI investment have raised doubts about whether corporate earnings can justify the sector’s rapid rally. Despite the recent decline, European bond yields remain near multi-year highs, supported by persistent energy-driven inflationary pressures, resilient economic activity and concerns over France’s public finances ahead of next year’s presidential election. Investors are now turning their attention to Wednesday’s US CPI report and comments from ECB policymakers during this week’s IMF–World Bank meetings for further signals on the outlook for monetary policy.

The 10-year Bund yield edged lower to 3.48%, as German government bonds continued to benefit from safe-haven demand despite a rebound in oil prices. Brent crude rose following a deadly attack on Riyadh’s airport in Saudi Arabia, while Ukraine reported continued Russian attacks on its energy infrastructure. European bond yields remain close to multi-year highs amid persistent energy-driven inflationary pressures, resilient economic activity and concerns over France’s public finances. The country’s minority government aims to reduce the fiscal deficit to 5% of GDP in 2027, although securing parliamentary support for spending cuts remains uncertain ahead of next year’s presidential election. German politics also remained in focus after Bärbel Bas announced her resignation as Labour Minister and SPD leader. Investors are now awaiting Wednesday’s US CPI report and remarks from ECB policymakers at this week’s IMF-World Bank meetings for further clues on the monetary policy outlook.