Italy’s 10-year BTP yield climbed above 3.9% as escalating tensions in the Middle East put renewed pressure on European sovereign debt. The move accelerated after President Donald Trump’s prime-time address, which failed to offer a clear path toward resolving the conflict and intensified the bond sell-off.
While Trump indicated that the US operation was nearing completion, his pledge to step up military action — including potential strikes on electrical infrastructure — further unsettled investors. The lack of fresh justification for the war, combined with ongoing uncertainty, has exacerbated inflation concerns and prompted markets to reassess the European Central Bank’s policy trajectory.
Traders now anticipate three ECB rate hikes in 2026, up from two just a day earlier. Before the conflict erupted, markets had not priced in any tightening at all; some participants were even expecting a move toward monetary easing.
