Germany's 10-year Bund yield rose to 3.12%, rebounding from two-week lows, as renewed military clashes between the US and Iran pushed oil prices higher and reignited inflation concerns. Investors also stayed cautious ahead of the Federal Reserve’s policy decision later in the day. The Fed is widely expected to leave interest rates unchanged, though markets still assign roughly a one-in-three probability to a 25 bp hike.
In the euro area, money markets are currently pricing in nearly two European Central Bank rate increases by March 2027. ECB Governing Council member Peter Kazimir stated that at least one additional hike will likely be necessary to bring inflation under control, and noted that a weaker economic outlook could even warrant more tightening than markets currently anticipate. Chief Economist Philip Lane described the current inflation shock as moderate, underscoring the case for further policy tightening. Investors now look to upcoming euro area inflation data later this week for fresh clues on the ECB’s policy path.
