Euro zone bond yields dip after Iran-driven selloff

Euro zone bond yields edged lower Thursday as oil prices steadied, after Wednesday's sharp selloff pushed Germany's 10-year Bund yield to 3.072%.investing+1
Trump's statement that the Iran ceasefire was "over" sent Brent crude surging and drove U.S., U.K., and German government bond yields to multi-week highs.wsj+1
Markets now price in roughly 36 basis points of further ECB rate hikes by year-end, up from 25 basis points earlier in the week, according to Deutsche Bank .investing+1

Euro zone government bond yields edged lower on Thursday as oil prices steadied, though borrowing costs remained near seven-week highs following a sharp selloff triggered by renewed U.S.-Iran tensions earlier in the week.

Partial Reversal After Wednesday's Surge

Germany's 10-year Bund yield slipped modestly on Thursday after surging approximately 8.5 basis points the prior session to 3.072%, its highest level since mid-June. The partial recovery came as crude oil prices stabilized following their surge past $79 per barrel on Wednesday, when Brent crude jumped 7% after President Donald Trump declared the U.S.-Iran ceasefire was "over".investing+2

The selloff on Wednesday extended across global bond markets. U.S. 10-year Treasury yields rose to 4.59%, while the U.K. 10-year gilt yield reached 4.909%. The Wall Street Journal News Corp reported that yields across major government bond markets hit four-week highs as military tensions in the Middle East pushed energy prices higher.finance.yahoo+2

ECB Rate Hike Expectations Climb

Money markets responded to the energy shock by increasing bets on further European Central Bank Euronext N.V. monetary tightening. Pricing moved to roughly 36 basis points of additional rate hikes by year-end, up from 25 basis points earlier in the week. Germany's 2-year bond yield, sensitive to ECB policy expectations, also rose 9 basis points on Wednesday to 2.682%.investing

Deutsche Bank noted that European assets remain highly sensitive to the renewed energy shock, with hawkish repricing of ECB policy accelerating alongside the bond selloff. A Bloomberg survey from May had already forecast two quarter-point ECB hikes in 2026, in June and September. The ECB raised its deposit rate to 2.25% in June, citing inflation pressures from the Middle East conflict.cnbc+3

Broader Context

The latest bout of volatility underscores how exposed European fixed-income markets remain to the U.S.-Iran conflict, which has periodically disrupted oil flows through the Strait of Hormuz since early 2026. S&P Global warned in late June that the energy shock had rekindled stagflation risks across Europe, while the ECB's own revised forecasts project headline inflation averaging 3.0% this year.thecorner+3

The ECB's next policy meeting is scheduled for July 23, with the September 10 meeting now seen as the most likely occasion for another rate increase.global.morningstar

Sources (38)