The benchmark retreated from last week’s 15-year high above 3.2% as Brent crude dropped and traders still priced in nearly two 25-basis-point ECB hikes by February 2027.
Germany’s 10-year Bund yield fell to 3.14%, pulling back from the 15-year high above 3.2% reached last week as weaker oil prices reduced near-term inflation worries. Brent crude slid from two-month highs after the US and Iran halted hostilities, raising hopes that a diplomatic outcome could reopen shipping through the Strait of Hormuz. Traders modestly trimmed bets on further European Central Bank tightening, but money markets still imply nearly two 25-basis-point rate increases by February 2027. ECB Chief Economist Philip Lane said the current inflation shock remains moderate and calls for some policy tightening rather than an aggressive response, with inflation expected to return to the 2% target over the next year. The ECB left rates unchanged last week after June’s increase and indicated another move in September remains possible. Investors are now looking to fresh inflation data later this week for clearer signals on the policy path.