German 10-year Bund yields declined to 2.95% at the end of May, nearing their lowest level since April 8 and putting them on track for an eight-basis-point drop over the month. Cautious optimism about a possible US–Iran agreement helped ease inflation concerns as negotiations to end the three-month war continued. Media reports indicated that Washington and Tehran had reached a preliminary understanding on a 60-day extension of the ceasefire to allow for formal talks, although President Trump had not yet approved the deal.
At the same time, investors scrutinized fresh inflation data from the euro area’s largest economies for guidance on the ECB’s policy outlook. Regional CPI figures from Germany suggested that national inflation cooled in May, despite higher energy costs tied to the conflict with Iran. By contrast, inflation in France, Spain, and Italy accelerated to multi-year highs, with all three countries posting readings above the ECB’s 2% target. Minutes from the latest ECB meeting showed that some policymakers would have supported a rate hike in April had it been proposed, reinforcing expectations for a 25-basis-point increase at the June 11 meeting.
