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2026-05-23 10:13:23
[US-Germany Interest Rate Spread Widens to Nine-Month High, Eurozone Bond Yields Fall Sharply] ⑴ Eurozone bond yields fell sharply on Friday as investors reacted to signs of progress in US-Iran peace talks, and lower oil prices pulled government borrowing costs away from multi-year highs reached earlier this week. The yield on German 10-year bonds fell 7 basis points to 3.0334%, its lowest level since May 11; the yield on Italian 10-year bonds also hit its lowest level since the same day during the session. ⑵ The yield on German 10-year bonds touched a 15-year high of 3.2% on Tuesday as the Iran war caused energy prices to surge and triggered a sell-off in global bond markets, with investors beginning to price in expectations of interest rate hikes. Brent crude fell to around $104.41 a barrel on Thursday, down from $113 on Monday, as both the US and Iran indicated progress in negotiations. An ING senior interest rate strategist said that although the signals are sometimes contradictory, there are signs of progress, and at least the gap between the two sides' positions is narrowing. (3) The spread between the yields on 10-year US and German government bonds widened to over 154 basis points on Thursday, the highest since August 2025, reaching 154.06 basis points. In May, the yield on 10-year US Treasury bonds rose nearly 18 basis points to over 4.5%, a 16-month high; while the average yield on bonds from other G7 countries rose only 6 basis points, and German bonds only about 3 basis points. The head of US interest rate strategy at TD Securities stated that the repricing of Federal Reserve policy expectations is the main factor driving the rise in US interest rates. (4) Money market traders now expect the European Central Bank to raise interest rates by about 65 basis points this year, down from over 70 basis points earlier this week. The market believes there is about a 50% chance of the Federal Reserve raising interest rates this year, while pre-war expectations were for two rate cuts. ECB President Christine Lagarde stated that even if the Strait of Hormuz were to reopen immediately, the war with Iran would still push up inflation in the Eurozone.
