German 10-year Bund yields rose to 3.25%, hovering near the 15-year high of 3.275% reached last week, as investors continued to weigh inflation risks arising from the US–Israeli war with Iran and persistently high government spending. Oil prices, however, remained relatively subdued after US threats of an “economic D-Day” of sanctions on Iran had only a limited impact. Brent crude still traded above $90 per barrel, with markets bracing for potential further constraints on refined fuel supplies, low gas inventories, and a protracted conflict that could stretch beyond the US midterm elections in November. These factors have led traders to step up their bets on additional ECB rate hikes.
Money markets now price in more than 40 basis points of further ECB tightening this year, with the first hike fully anticipated as early as next month. At the same time, resilient economic growth has contributed to higher bond yields and firmer expectations of further rate increases. Data released on Tuesday showed that the German economy expanded by 0.3% in Q2 2026, exceeding the preliminary estimate of 0.2%.
