FX.co ★ Bund Yields Surge Past 3% as Middle East Tensions Rattle Markets

Germany’s 10-year Bund yield has climbed back above 3%, approaching its highest level since May 2011, as rising tensions in the Middle East put renewed pressure on European sovereign debt. A prime-time address by President Donald Trump, which failed to offer a clear timeline for resolving the conflict, further fueled the bond sell-off. Although Trump suggested that the current US operation was nearly complete, his vow to adopt more forceful measures—potentially including strikes on power infrastructure in the coming weeks—heightened market anxiety. In the absence of a new justification for continuing the war and amid growing uncertainty, inflation fears have intensified, prompting investors to reassess the European Central Bank’s policy trajectory. Markets now price in three interest rate hikes for 2026, up from two just a day earlier. Prior to the conflict, investors had expected no increases at all, with some even wagering on monetary easing.