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ECB Policy · Eurozone Bonds · Geopolitical Risk · Inflation
Eurozone benchmark Bund yields edged down slightly on Tuesday after reaching a near 15-year high of 3.077% on Monday, driven by escalating Middle East conflict fears and a 40% surge in oil prices, which intensified expectations for European Central Bank rate hikes.
The conflict, involving Iran's missile strikes on Israel and U.S. counter-strikes, has fueled inflation concerns across the Eurozone. Germany's 10-year government bond yield, the region's benchmark, settled at 3.01% on Tuesday.
Money markets now fully price in two European Central Bank rate hikes by July, projecting the deposit facility rate to reach 2.65% by year-end from its current 2%. Germany's 2-year yields, sensitive to policy rates, also saw a slight decrease to 2.60% after hitting 2.764% the previous day.
Italy's 10-year government bond yields fell to 3.91% after reaching 4.119% on Monday. The yield gap between Italian bonds and Bunds widened to 85 basis points, up from 63 basis points before the attacks against Iran, indicating increased risk perception for peripheral Eurozone debt.
The French spread also expanded to 69 basis points from 58 basis points.
Eurozone government bond yields fell, tracking moves in Treasury yields, amid tentative optimism about a potential resolution to the Middle East conflict.
