Germany’s 10-year Bund yield moved toward 3.2%, nearing the 15-year high reached last week and recording a rise of more than 30 basis points in July, its largest monthly increase since March. The policy-sensitive two-year Bund yield also climbed by over 25 basis points, as investors intensified bets on further ECB rate hikes amid concerns that the conflict in the Middle East could sustain higher inflation over the longer term.
Money markets now fully price the ECB’s deposit rate at 2.75% by early 2027, implying two additional rate increases, with the first potentially coming as soon as September. These expectations were bolstered by stronger-than-anticipated eurozone data: the economy grew 0.4% in the second quarter, exceeding the 0.2% forecast and marking its fastest pace of expansion since early 2025. Annual inflation also quickened to 2.9% in July, while both core and services inflation picked up.
In the United States, the Federal Reserve kept interest rates on hold this week, while markets continue to anticipate two rate hikes by June of next year.
