Oil Price Drop Sends European Yields Sliding

The German 10-year bund yield dropped to the mid-3.4% range on the 21st, marking its sharpest price rally since May.

The decline was driven by a sharp drop in crude oil prices, with November Brent Crude briefly falling below $100 per barrel for the first time in about two weeks.

Reports of increased shipping activity through the Strait of Hormuz and growing optimism over diplomatic efforts to end the U.S.-Iran war led to a sell-off in oil and natural gas prices.

This, in turn, reduced expectations that the European Central Bank (ECB) would implement additional rate hikes to curb inflation.

The market now prices in a 12.5 basis point hike at the October meeting, a cumulative 35 basis points by the end of 2026, and 81 basis points by the end of 2027.