Germany’s 10-year Bund yield slipped to 3.45%, extending its pullback from the 17-year high reached in late September, as declining oil prices and increased safe-haven demand supported bond markets. Brent crude retreated from recent peaks after concerns over Middle Eastern supply eased, following comments by US President Donald Trump that Washington would not attack Iran before the November midterm congressional elections and that “productive” talks were underway to end the conflict.
At the same time, markets pared back expectations for further ECB tightening. The deposit facility rate, currently at 2.50%, is now priced to rise to around 2.72% by December and 3.20% by late 2027. Prior to the recent widening in bond spreads, investors had expected roughly one additional rate increase in early 2027.
Borrowing costs and risk premiums on French and Italian government bonds also declined, reversing part of last week’s sharp rise, as investors reassessed fiscal and political risks across the euro area.
