Germany’s 10-year Bund yield eased toward 3.55% at the end of September, pulling back from a 17-year high of 3.65% reached earlier in the week, as investors turned more cautious about the prospect of further central bank rate hikes. Nonetheless, Bunds posted a sharp monthly selloff, with yields climbing 27 basis points. The move was driven by rising energy prices, which stoked renewed inflation concerns, and by expectations that the AI boom could underpin growth, reinforcing bets on interest rates staying higher for longer. Political uncertainty ahead of elections in France, Spain, and Italy next year also weighed on bond markets.
Market sentiment improved midweek, however, as oil prices retreated and central bankers pushed back against the idea of a rapid and sustained tightening cycle. ECB policymaker Peter Kazimir said on Tuesday that, after two rate hikes this year, the central bank now has time to keep policy flexible. In the United States, New York Fed President John Williams likewise noted that the Fed has room to evaluate incoming data before considering additional rate increases.
