Germany’s 10-year Bund yield slipped to 3.03%, down from a near two-month high of 3.09% on Thursday, as crude prices retreated amid the resumption of US-Iran peace talks following recent hostilities in the Strait of Hormuz. Earlier in the week, Brent crude had climbed to a two-week peak after US President Trump announced the end of the Iran ceasefire, while noting that Tehran remained interested in a deal.
Despite the pullback on the day, Bund yields ended the week 10 basis points higher, driven by expectations of further tightening by the European Central Bank. At its June meeting, the ECB raised interest rates for the first time since 2023, and investors now expect two additional hikes over the coming year to counter the inflationary pressure from higher fuel costs linked to the Iran conflict. ECB policymaker Yannis Stournaras warned that the central bank is "back to square one" in its inflation battle due to the renewed rise in oil prices.
On the political front, the German government approved a 2027 draft budget featuring €555.4 billion in spending alongside increased borrowing.
