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2026-05-25 17:18:18
[Eurozone Bond Market Rebounds as Middle East Situation Affects Central Bank Rate Hike Probability] ⑴ Eurozone government bond yields fell across the board on Monday as renewed hopes for a US-Iran agreement to reopen the Strait of Hormuz eased inflation concerns and reduced expectations of aggressive rate hikes. ⑵ Oil prices plunged 5% on optimism, directly lowering borrowing costs. Money market expectations for the ECB's December deposit rate were lowered from 2.67% to 2.57%, and the probability of the first rate hike next month fell from 80% to 70%. ⑶ The yield on German two-year government bonds fell 7 basis points to 2.5671%, a new low since May 7; the yield on 10-year bonds fell 5 basis points to 2.9831%, also the lowest level since May 7. ⑷ The yield on Italian 10-year government bonds fell 6.5 basis points to 3.70%, and the spread between Italian and German 10-year bonds was 71 basis points, widening from 63 basis points before the Iranian attack. (5) ING's senior interest rate strategist pointed out that Europe would benefit the most if the situation in the Strait of Hormuz were resolved quickly, but the overall European macroeconomy remains fragile, and caution is needed regarding further policy tightening.
