Italy’s 10-year BTP yield climbed above 3.7%, its highest level since May 2025, as escalating tensions in the Middle East stoked inflation concerns and strengthened expectations of further interest rate hikes. Oil prices extended their rally, briefly surpassing $100 per barrel after Iran stepped up attacks on oil and transport infrastructure across the region.
The International Energy Agency’s decision to release 400 million barrels from strategic reserves brought little immediate relief, as the additional supply is expected to take weeks or even months to fully reach the market. Money markets are now fully pricing in a European Central Bank rate increase by July and assign an 85% probability to another hike by December. This represents a sharp reversal from late February, when traders saw roughly a 40% chance of an ECB rate cut before year-end.
