FX.co ★ Bund Yields Retreat as Iran War Optimism Tempers Rate Hike Fears

Germany’s 10-year Bund yield fell to 2.96%, pulling back from recent multi‑year highs, as rising expectations of a swift end to the Iran conflict eased fears of surging energy prices and further aggressive ECB rate hikes. Cautious optimism was supported by US President Donald Trump’s remark that the US could withdraw from Iran “in two or three weeks,” with or without a deal. However, shifting timelines and mixed signals from Washington have sustained uncertainty as the war enters its fifth week. In response, markets scaled back expectations for ECB tightening, now pricing in just two rate hikes by December, down from three at the start of the week. Before the conflict, investors had anticipated no hikes in 2026 and even assigned a modest probability to monetary easing.