Eurozone Hawkishness Drives Bund Yields Near 2011 Highs

German 10-year Bund yields have hit levels not seen since March 2011 as investors anticipate a more hawkish European Central Bank. The ECB is widely expected to raise interest rates in September, following its June tightening to combat inflation pressures caused by the US-Iran conflict and rising energy prices.

Oil prices remain above $90 per barrel due to ongoing supply constraints for refined fuels, low gas inventories, and a prolonged conflict that could extend beyond the US midterm elections in November.

The market now expects further tightening, with a 25% chance of the deposit rate reaching 3% by March 2027 and a 60% chance by September. The expected September rate hike would bring the deposit rate to 2.5%. Meanwhile, markets are watching US Treasury Secretary Bessent's press conference for potential targets in China after he threatened 'the toughest sanctions in history' on Iran.