FX.co ★ Bund Yields Dip Below 3%

Germany’s 10-year Bund yield dropped below 3%, reaching its lowest level since June 3, as markets reacted to overnight comments from US President Donald Trump indicating that a potential US-Iran agreement could be signed as early as this weekend. Tehran, however, said it had not yet reached a final decision. Yields have been moving in step with oil prices and war-related headlines, as traders gauge the risk of a prolonged closure of the Strait of Hormuz. The longer the disruption continues, the higher the probability that persistently elevated energy prices will feed into broader inflation, potentially forcing central banks to deliver substantial rate hikes. In line with these concerns, the European Central Bank raised interest rates on June 11 for the first time in three years, seeking to head off a broader inflation spike driven by rising fuel costs. Money markets now expect another increase, most likely in September, although a July move remains on the table.