European Yields Hit Multi-Year Highs as Energy Prices Fuel Rate Hike Expectations

European Central Bank (ECB) rate hike expectations have risen due to higher energy prices. According to Deutsche Bank, rising oil and natural gas prices are pushing European yields to multi-year highs. Markets now price a more hawkish ECB path, with an additional +9.0bps of hikes priced in by the June 2027 meeting.

The bank's European economists expect small upward revisions to GDP for 2026-2027 and higher headline inflation for 2027-2028. The ECB is likely to maintain a data-dependent stance without formal forward guidance.

Market participants are pricing in more ECB tightening, with an additional 9 basis points (bps) of hikes priced in by the June 2027 meeting. This means that a total of 86 bps of further hikes are now priced by then.