FX.co ★ 10-Year Bund Yield Holds at 5-Year High

The yield on the German 10-year Bund climbed to 3.20% on Thursday, its highest level in more than five years, after the European Central Bank signaled it remains vigilant about mounting pro-inflationary risks. As widely anticipated, the ECB left its key interest rates unchanged, but reiterated that the recent surge in energy prices tied to the war in the Middle East has not yet been fully passed through to consumer prices in the Eurozone. Persistent inflationary pressures had already prompted the ECB to deliver a rate hike in June.

At the same time, natural gas benchmarks jumped back to three-year highs, as blockades on tankers departing the Red Sea and Persian Gulf threatened global LNG supplies, further darkening the inflation outlook. Money markets are still pricing in at least two additional rate hikes by year-end, with September viewed as the most likely date for the next move.

Rising deficit spending in Germany, France, and Italy also pushed yields higher across the curve, while increased Bund issuance helped keep sovereign yield spreads between Eurozone countries relatively stable.