Bund Yields Hit 17-Year High on Inflation Fears

Germany’s 10-year Bund yield rose above 3.5%, reaching its highest level since June 2009, after climbing more than 16 bps last week, the biggest weekly increase since early March, shortly after the Iran war began. Global bond markets remain under pressure from elevated energy prices and growing concerns over inflation and higher interest rates, with yields repeatedly reaching fresh multi-year highs. Oil prices climbed well above $100 a barrel as tensions around the Strait of Hormuz intensified following new Houthi strikes on Saudi Arabia and Iranian attacks on Gulf shipping. The ECB raised rates last week and signaled that further tightening could follow, prompting markets to price in at least one more rate hike this year. Attention now turns to a busy week for central banks, with the Fed decision on Wednesday, followed by the BoE on Thursday and a widely expected BoJ hike on Friday. The BoE is expected to hold rates, although the vote is likely to be close.

Germany 10 Year Government Bond Yield increased to 3.52%, the highest since August 2009. Over the past 4 weeks, Germany 10Y Bond Yield gained 30.01 basis points, and in the last 12 months, it increased 82.21 basis points.

Eurozone government bond yields continued to rise, with global debt markets suffering their worst weekly selloff since the start of the Iran war as surging energy prices fuel inflation concerns. Germany’s 10-year Bund yield climbed above 3.5%, its highest since August 2009, while Italian yields reached their highest since late 2023 and French yields hit 18-year highs. The European Central Bank raised rates by 25 bps on Thursday, warning that inflation could remain well above its 2% target for an extended period. President Christine Lagarde called the hike a “no-brainer” and said the return to target, currently expected by the end of 2027, could be delayed further. The inflation outlook has deteriorated so sharply that further monetary tightening is now considered increasingly likely, according to sources familiar with the discussions, with another rate hike potentially coming as soon as October. Markets are now pricing three more ECB hikes by March, followed by another by June.