FX.co ★ Eurozone Bond Yields Ease as Energy Prices Cool

Eurozone government bonds broke a six-day losing streak on Thursday, with yields retreating from multi-year highs as easing energy prices helped temper inflation worries and prompted markets to slightly scale back expectations for further European Central Bank (ECB) rate hikes.

Germany’s 10-year Bund yield slipped to 3.36%, just below Wednesday’s 15-year peak of 3.3951%, after Brent crude pulled back from six-week highs and natural gas prices fell from their strongest level since January 2023. The move followed comments from US President Donald Trump, who said the renewed US military campaign in Iran would not be prolonged.

Despite the pullback, bond yields remain elevated amid persistent concerns over energy-driven inflation, higher interest rates and fiscal sustainability in countries such as France and the UK.

Money markets still fully anticipate a 25-basis-point ECB rate increase to 2.5% next week. They are also assigning an almost 100% probability to a 3% deposit rate by June 2027, implying two additional rate hikes by mid-2027.