Euro zone short-dated yields climb for fourth day amid Iran-US stalemate

Euro zone short-dated government bond yields rose for a fourth consecutive session on Wednesday, as tensions surrounding the Strait of Hormuz bolstered expectations of further European Central Bank rate hikes later this year.

Borrowing costs have tracked gains in ‌oil prices, ⁠which ⁠have stoked concerns about inflation and raised the prospect of a swift hawkish response from the ECB.

Investors will closely watch PMI data later in the session, especially price indices, for clues on the inflationary effects of higher energy costs.


Germany's 2-year yields, more sensitive to expectations for ⁠policy rates, ‌rose 3 basis points (bps) at 2.57%. They reached 2.771% in late March, the highest ⁠since July 2024.

Iran tightened its grip on the Strait of Hormuz after U.S. President Donald Trump announced he was indefinitely calling off attacks, with no sign of peace talks restarting.

Germany's 10-year government bond yield rose 4 bps to 3.04%. It reached 3.13% in late March, its highest level since June ‌2011.

Money markets priced in an ECB deposit facility rate at 2.59% by year-end, implying two hikes and an about 35% ⁠chance of a third move, from around 2.35% late Friday.

Italy's 10-year government bond yields rose 6 bps to 3.85%. The yield gap of Italian government bonds versus Bunds was at 76 bps. It was at 63 bps before the attack against Iran and hit 103.62 during the conflict, the highest since June 2025.