German Bund Yields Rise as ECB Rate Hike Expectations Grow
Germany’s 10-year Bund yield rose to 3.05% in early May, hovering near multi-year highs, as investors anticipate the European Central Bank may soon raise interest rates to curb inflation. The move comes amid persistent global energy shocks, with oil prices near four-year highs and the Strait of Hormuz remaining closed due to the US-Israeli conflict with Iran. Money markets are pricing in an 80% probability of a 25-basis-point rate hike by June and fully expect at least two increases this year. While the ECB left rates unchanged at its last meeting, it signaled openness to future adjustments, citing rising inflation risks and growth concerns. ECB President Christine Lagarde confirmed the unanimous decision to hold rates, though a hike had been discussed. Meanwhile, officials Joachim Nagel and Madis Müller hinted at potential tightening as early as June, warning of a deteriorating inflation outlook and the risk of persistent price pressures.

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