FX.co ★ Bund Yields Rise as Iran Tensions, Inflation Fears Grow

Germany’s 10-year Bund yield rose to 3.1%, approaching its highest level since May 2011, as growing signs of economic fallout from the Iran conflict prompted investors to anticipate faster interest rate hikes alongside weaker growth. Oil prices spiked after US President Donald Trump declared that “we don’t need the Strait of Hormuz open” and warned that Washington’s patience with Tehran is running out, stoking fears of a renewed military confrontation in the region. The surge in energy costs has intensified concerns that higher input prices will spread across the economy, pushing up the cost of goods and services and further entrenching inflation. In response, investors have ramped up wagers on European Central Bank tightening, with markets now fully pricing in three rate increases. Reinforcing these expectations, ECB policymaker Martins Kazaks said on Thursday that the central bank would have to raise borrowing costs if elevated crude prices begin to feed into inflation expectations.