Germany’s 10-year bund yield climbed to 2.97%, rebounding from a six-week low hit on Monday, as renewed unrest in the Middle East weighed on market sentiment and pushed Brent crude prices higher. Earlier optimism over a potential resolution to the three-month US–Iran conflict—which has severely disrupted oil and gas supplies from the region and pushed global inflation higher—receded after Washington confirmed it had carried out defensive strikes in southern Iran, signaling that any peace deal remains distant.
On the monetary policy front, ECB policymaker Isabel Schnabel told Reuters that the central bank should proceed with an interest rate increase in June even if a peace agreement is reached, citing the magnitude and persistence of the energy shock. Money markets now imply a 90% probability of a June rate hike and are pricing in roughly 60 basis points of additional tightening by year-end, pointing to at least two 25-basis-point increases.
