Bund Yields Climb to Two-Week High

Germany’s 10-year Bund yield rose towards 3.4%, reaching its highest level since late October, as investors increased bets on further European Central Bank interest rate hikes, while a rebound in equity markets this week reduced demand for safe-haven assets. ECB euro short-term rate (€STR) forwards now indicate that markets expect the deposit rate to rise from its current 2.5% to 3.25% by late 2027, up from 3% priced in last week. They also point to a rate of 2.74% by December 2026. Meanwhile, stronger-than-expected US inflation data released on Tuesday pushed Treasury yields higher and reinforced expectations of further Federal Reserve tightening. Markets are now fully pricing in a rate hike by December, with the possibility of a larger 50-basis-point increase also being considered. Adding to inflationary concerns, oil prices rebounded from more than two-month lows after US President Donald Trump said on Thursday that Washington did not need a deal with Iran.

France’s 10-year OAT yield edged up toward 4.81%, following a sharp rise in inflation concerns and interest rate expectations across the US and Europe earlier in the week. Stronger-than-expected US inflation data pushed Treasury yields higher and strengthened bets on further Fed rate hikes, with the sell-off spreading to European bond markets before stabilizing. Meanwhile, Brent crude traded around $93 a barrel, well below recent highs, while European gas prices also declined amid increased Gulf supplies and easing concerns over a renewed escalation in the conflict. On the monetary policy front, markets are pricing in an 80% chance of a 25-basis-point ECB rate hike in December, with two increases fully priced in by mid-2027. In the US, persistent inflation pressures and hawkish Fed commentary have reinforced expectations of a December rate hike, while raising the possibility of a larger 50-basis-point increase.

Germany’s 10-year Bund yield steadied near 3.33%, as investors took a breather following a sharp rise in inflation concerns and interest rate expectations across the US and Europe earlier in the week. Stronger-than-expected US inflation data on Tuesday pushed Treasury yields higher and reinforced bets on further Federal Reserve rate hikes, with the sell-off spilling over into European bond markets before yields stabilized. Meanwhile, Brent crude traded around $93 a barrel, well below recent highs, while European gas prices also declined amid increased Gulf supplies and easing concerns over a renewed escalation in the conflict. On the monetary policy front, markets are pricing in an 80% chance of a 25-basis-point ECB rate hike in December, with two increases fully priced in by mid-2027. In the US, the latest inflation data and hawkish Fed commentary have reinforced expectations of a December rate hike, while raising the possibility of a larger 50-basis-point increase.