Germany’s 10-year Bund yield extended its retreat below 3.45% after recently hitting a 17-year high, as the sharp selloff in European government bonds paused and investors balanced renewed demand for safe-haven assets against expectations of further ECB rate hikes through 2027.
French government bond yields hovered near their highest levels in more than two decades amid persistent concerns over the country’s public finances, while mounting political uncertainty ahead of the 2027 elections in both France and Italy further intensified fiscal worries.
At the same time, investors assessed stronger-than-expected Eurozone inflation data: headline inflation accelerated to 3.8% last month, the highest reading since September 2023 and well above the ECB’s 2% target, driven mainly by higher fuel costs.
ECB Executive Board member Isabel Schnabel said the coming months would be crucial for evaluating the impact of the latest energy shock and determining how far interest rates still need to rise, signaling a cautious and data-dependent stance.
Nevertheless, money markets currently price in one additional 25-basis-point rate hike by December, with a modest probability of a second move, and project the ECB deposit rate to peak at around 3.4% by late 2027.
