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2026-09-21 21:44:12
[German Bond 5-Year/30-Year Yields Enter Support Zone, Yield Flattening May Be Nearing Completion] ⑴ After rapid flattening in recent weeks, the 5-year/30-year German bond yield curve may be entering a support zone. This flattening trend has even continued in US Treasuries due to the recent oil price sell-off. ⑵ The curve has flattened by nearly 30 basis points since the end of August, currently trading at 51.2 basis points, the flattest level since February 2025. Approximately 10 basis points of this flattening occurred as Brent crude oil fell 8% from its multi-week high on September 11th, with the previous bear market flattening turning into a bull market flattening following the decline in oil prices. ⑶ The initial sharp bear market flattening triggered by the outbreak of the conflict between the US and Iran caused front-end yields to be repriced higher due to inflation concerns, completely erasing market expectations for the European Central Bank to ease policy to address economic weakness in early 2026. The 5-year German bond yield was caught in the inflation repricing, compressing the spread between the middle and long ends of the curve. (4) As front-end policy rates remain effectively anchored by the hawkish ECB policy and rhetoric, the recent decline in oil prices is being expressed in the form of long-term trades, taking advantage of multi-decade high long-term yields. With the risk of more structurally rising inflation fading, the German bond curve is flattening in a bull market. (5) If oil prices continue to fall in the coming months, it could be catalyzed by diplomatic breakthroughs or substantial improvements in supply dynamics, potentially triggering further steepening of the bull market as policy expectations adjust. (6) This shift from flattening to steepening could occur within the aforementioned support zone in the coming months, provided the ECB's stance becomes less hawkish and ultimately more dovish. (7) The potential economic downturn in core Eurozone countries remains a risk; the group's 2026 growth forecast has been lowered. (8) Overall, the flattening of the German bond curve is approaching historical extremes. Falling oil prices and growth concerns are reshaping policy expectations. Going forward, attention should be paid to changes in ECB rhetoric and whether oil prices can continue to decline to determine if the curve has reached an inflection point.
