Germany’s 10-year Bund yield rose toward 3.05%, nearing its highest level since 2011, as escalating tensions around the Strait of Hormuz amplified inflation concerns and strengthened expectations of European Central Bank rate hikes. Earlier optimism about a US-led diplomatic resolution has faded after the collapse of a two-week ceasefire and the failure to restart negotiations between the US and Iran. Market sentiment has turned cautious, with money markets now fully pricing in two quarter-point ECB rate hikes in 2026 and assigning a 55% probability to a third increase by year-end. On the economic front, Germany’s Ifo Business Climate Index fell to 84.4 in April, its lowest since May 2020, missing expectations of 85.5, amid deepening concerns that the Middle East conflict is further undermining Germany’s already fragile economic recovery.
