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[German Two-Year Bond Yield Surges to New High Since July Last Year; Middle East Conflict Ignites ECB Rate Hike Expectations Repricing] ⑴ On Tuesday, the yield on German two-year government bonds touched 2.7985% intraday, the highest level since July 2024, before closing up 5 basis points at 2.77%. The money market simultaneously pushed up its December deposit rate forecast for the European Central Bank to 2.68%, fully pricing in a September rate hike, a cumulative upward revision of over 40 basis points from the current 2.25%. ⑵ The driving logic clearly points to the military conflict in the Strait of Hormuz. The US-Iran conflict has pushed oil prices to a four-week high, and rising energy costs are directly impacting the Eurozone's inflation outlook, forcing the market to reassess the ECB's policy path. The benchmark yield on German ten-year bonds also rose 2.5 basis points to 3.10%, approaching the 3.20% peak reached in mid-May, the highest since 2011. (3) Southern European bonds are under more significant pressure. The Italian 10-year yield jumped 5.5 basis points to 3.92%, widening the spread with German bonds to 80 basis points, a significant increase from the pre-conflict level of 63 basis points. The spread between French and German bonds also remained around 80.50 basis points, having touched 84 basis points last week—the widest level since October 2025. Investors' concerns about France potentially failing to meet its fiscal deficit target continued to exert pressure. (4) BNY Mellon strategist Tam warned that inflation data will remain highly volatile, and Federal Reserve Governor Waller signaled on Monday that a "near-term rate hike" would be necessary if data continues to exceed expectations. The market is holding its breath awaiting Warsh's congressional testimony and US CPI data. If core inflation stickiness exceeds expectations, the German bond yield curve may further flatten, and if the Italian-German spread breaks through 85 basis points, it will trigger a new round of systemic shorting strategies on bonds of peripheral European countries.