Germany’s 10-year Bund yield rose to 2.8%, its highest level since February 11, as investors refocused on inflation risks amid the escalating conflict in the Middle East, now in its sixth day. The confrontation has widened markedly, with reports that a US submarine sank an Iranian warship near Sri Lanka and that NATO air defenses intercepted an Iranian ballistic missile fired toward Turkey.
The resulting spike in energy prices is expected to keep inflationary pressures elevated across Europe, bolstering expectations of a more hawkish stance from the European Central Bank. Recent data have reinforced these concerns: February figures showed annual euro area inflation at 1.9%, while core inflation reached 2.4%, both coming in above market forecasts.
Interest-rate markets now assign roughly a 40% probability to an ECB rate hike by year-end, a sharp reversal from last week, when similar odds were attached to a rate cut. They also imply about a 60% chance of a further hike by June 2027.
