Euro Zone Bond Yields Surge Amid Middle East Conflict Concerns

Euro zone benchmark government bond yields remained high as prolonged Middle East conflict concerns raised inflation worries. Germany's 10-year Bund yield steadied at 3.20%. Money markets anticipate possible ECB rate hikes, predicting a deposit rate of 2.76% by March 2027, reflecting economic uncertainties.

Euro zone benchmark government bond yields hovered near their highest levels in over 15 years on Monday, stirred by the ongoing conflict in the Middle East which threatens to exacerbate inflationary pressures.

Germany's 10-year Bund yield remained steady at 3.20%, approaching late July's peak of 3.2118%, the highest since May 2011. As geopolitical tensions rise, Iran has challenged the United States, leading President Donald Trump to criticize Tehran and warn of sustained high fuel prices.

Amid these tensions, economic markets are bracing for significant shifts. The European Central Bank is expected to adjust its deposit rate to 2.76% by March 2027, up from the current 2.25%, with a strong likelihood of a rate hike in September. This economic volatility has also been reflected in the yield gap between 10-year Italian government bonds and German Bunds, which moved from 63 bps in February to 103.62 bps in late March, its widest since June 2025.