German 10-year Bund yields hovered around 2.95%, close to the previous week’s two-month low of 2.93%, as oil prices softened and signals on potential de-escalation in the Middle East remained mixed. US President Donald Trump and Israeli Prime Minister Benjamin Netanyahu issued conflicting accounts of a phone call regarding the conflict in Lebanon, with Trump urging a ceasefire while Netanyahu’s position appeared more ambiguous. This came after reports that Iran had suspended negotiations with the US, insisting on an end to hostilities in Lebanon, even as Trump maintained that talks were making rapid progress.
At the same time, investors digested Eurozone inflation data showing headline inflation rising to 3.2% in May, the highest level since late 2023. Core inflation climbed to 2.5%, while services inflation reached 3.5%, underscoring the breadth of underlying price pressures. Markets are now pricing in a 25-basis-point rate hike by the ECB next week and expect two increases in total this year. Even so, ECB Executive Board member Isabel Schnabel warned against excessive forward guidance, whereas Lithuania’s central bank governor Gediminas Šimkus signaled that an additional rate hike after June remains likely.
