Germany’s 10-year Bund yield, the benchmark for European borrowing costs, eased to 2.84% after nearing 2.9% on Monday, amid hopes for a swift end to the war in Iran. Markets found some temporary relief after US President Trump indicated that the military operation in Iran could conclude soon and is progressing well ahead of the initially projected four- to five-week timeline. Oil prices also fell back below $100 per barrel after Trump suggested several measures aimed at keeping energy costs in check.
Last week, ECB Chief Economist Philip Lane warned that a drawn-out conflict in the Middle East and a sustained decline in regional oil and gas supplies could trigger a “substantial spike” in inflation and a “sharp drop in output” across the euro area. Against this backdrop, markets now expect the ECB to raise its key interest rate by at least 25 bps once more this year.
