Bund Yields Hit 17-Year High as ECB Hike Bets Build

Germany’s 10-year Bund yield rose to 3.55%, its highest level since June 2009, as investors increased bets on further European Central Bank rate hikes amid renewed inflation concerns and ahead of today’s US Federal Reserve decision. Markets are now pricing the ECB deposit rate at around 2.9% by December, up from the current 2.5%. Further out, the rate is seen reaching 3.4% by November 2027, fully pricing a third hike and implying roughly a 50% probability of a fourth move. The ECB raised rates last week for the second time this year in an effort to contain an energy-driven rise in inflation, while warning that price pressures could prove persistent. The comments have strengthened expectations for further tightening. Meanwhile, US policymakers are widely expected to raise rates by 25 basis points later today, the first hike in three years, with markets also looking for signals on the prospect of further tightening.

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.