FX.co ★ German Bund Yields Surge as Inflation Fears Drive Rate Hike Bets

Germany’s 10-year Bund yield climbed toward 3.1%, a level last seen in 2011, as stalled efforts to halt the Iran conflict and surging oil prices intensified inflation fears, prompting investors to anticipate further ECB rate hikes. Brent crude reached a four-year high after reports that US President Trump had ordered preparations for a prolonged US naval blockade of the Strait of Hormuz to ratchet up economic pressure on Iran. In response, Iran’s armed forces announced plans for a “practical and unprecedented military action” should the blockade persist. Flash CPI data also showed Germany’s EU-harmonized inflation rate rising to 2.9% in April, the highest since January 2024 and well above the ECB’s 2% target. Although both the Fed and the ECB are expected to leave interest rates unchanged this week, markets are pricing in three quarter-point ECB rate hikes in 2026, underscoring expectations of further tightening amid the ongoing Middle East crisis.