The yield on the German 10-year Bund traded around 3.07%, near its highest level in two months, as persistent geopolitical tensions in the Middle East continued to shape inflation expectations and strengthen views that central banks may need to adopt a more hawkish policy stance. The conflict in the region remains unresolved, with repeated military strikes and diplomatic setbacks diminishing the chances of a breakthrough between the US and Iran and keeping oil prices elevated.
Against this backdrop, the European Central Bank is widely expected to raise interest rates by 25 basis points at its June 2026 meeting, which would mark its first hike since 2023. This anticipated tightening reflects mounting inflationary pressures in the wake of the energy shock triggered by the conflict with Iran. Investors will also closely scrutinize the ECB’s forward guidance, amid expectations that policymakers could deliver at least one additional rate increase later this year.