FX.co ★ Bund Yields Surge Above 3% on ECB Rate Hike Expectations

German 10-year Bund yields rose above 3%, extending their rebound from last week’s two‑month low of 2.93%, as escalating US‑Iran tensions stoked inflation worries and strengthened expectations of further European Central Bank rate hikes this year. On Monday, Iran’s Tasnim News Agency reported that Tehran would suspend talks with the United States over Israeli strikes in Lebanon and would fully close the Strait of Hormuz, accusing Washington of “violating the ceasefire on all fronts.” The subsequent jump in oil prices prompted investors to ramp up bets on tighter ECB policy. Markets are now pricing in at least two rate hikes by the ECB in 2026, with more than a 90% probability that the first increase could come as early as next week. Investors are also closely watching this week’s Eurozone inflation release, after last week’s data showed EU‑harmonized inflation quickening in May in France, Italy, and Spain, while slowing in Germany.