Germany’s 10-year Bund yield hovered around 3.20%, staying close to its highest level in more than 15 years as investors weighed the risk that a prolonged conflict in the Middle East could keep inflationary pressures elevated. While Brent crude has eased from its recent peak near $100 a barrel in July, it is still roughly 45% higher than at the start of the year, reinforcing worries about energy-driven inflation.
Geopolitical tensions escalated after Iran urged the US to accept defeat, while President Donald Trump cautioned Americans to brace for persistently high fuel prices as the conflict drags on. Against this backdrop, markets are increasingly pricing in a tighter trajectory for European monetary policy: the ECB deposit rate is now expected to reach 2.76% by March 2027, up from the current 2.25%, and futures imply more than a 90% probability of a rate hike in September. In contrast, softer economic data in the US have tempered expectations for an imminent rate increase by the Federal Reserve.
