FX.co ★ Bund Yield Dips Toward 2.9%

Germany’s 10-year Bund yield declined toward 2.9%, mirroring the drop in US Treasury yields and crude oil prices. Although shipping conditions through the Strait of Hormuz remain volatile and short-term oil supply is uncertain, structural supply is expected to increase following OPEC+’s decision to raise production.

Softer-than-expected inflation data and dovish comments from ECB President Christine Lagarde last week prompted markets to scale back expectations for a third rate hike by the ECB this year, although a second hike is still seen as likely. June’s figures showed headline inflation at 2.8% and core inflation at 2.4%, both below consensus forecasts. Speaking at the ECB’s Sintra Forum, Lagarde highlighted a more balanced outlook for both inflation and growth in the euro area.

Meanwhile, a weaker-than-anticipated US labor market report further dampened expectations of an imminent rate hike by the Federal Reserve.