The situation in the Middle East has repeated large ups and downs in oil prices, and the European bond market fluctuates simultaneously! Two-year German bond yields soared and fell

The Zhitong Finance App learned that on Monday, German two-year treasury bond yields once rose to a two-year high due to market expectations that the ECB would raise interest rates twice before the beginning of 2027, and then returned to the increase. Eurozone borrowing costs fluctuate along with oil price trends. Influenced by news of US-Iran negotiations, international oil prices dived. As of press release, WTI crude oil futures fell 2.04% to $80.11 per barrel; Brent crude oil futures fell 1.59% to $86.70 per barrel, previously breaking through $90.

According to reports, after the ongoing exchange of fire between the US and Iran, the negotiation process was not completely interrupted. Iran's Ministry of Foreign Affairs said on Monday that it can continue negotiations with the US based on national interests. Iranian Foreign Ministry spokesman Bagae said that Iran has received suggestions from the US and Iran's mediators, and the details are not easy to disclose. At the same time, he said that Iran's interior minister will visit Pakistan on the same day to discuss matters related to the two countries. Also, there are reports that the mediators have proposed a 10-day cease-fire to discuss plans to revive the provisional agreement between Iran and the US.

The yield on German 2-year treasury bonds, which are more sensitive to policy interest rate expectations, remained flat at 2.78%, before rising to 2.8174%, the highest level since July 2024.

According to the money market, ECB deposit interest rates will reach 2.67% in December and 2.75% in February 2027, higher than the current 2.25%. Furthermore, the market has completely absorbed expectations for the September rate hike.

Analysts pointed out that the strong linkage between oil prices and short-term interest rates in the Eurozone is once again showing. This logic dominated the market trend from March to May this year, and the recent rise in geopolitical risk has re-strengthened the link between the two.

The yield on German 10-year treasury bonds, which is regarded as the benchmark for the Eurozone, rose 1 basis point to 3.13%. In mid-May, the yield reached 3.20%, the highest level since May 2011.

Market participants continue to expect the ECB to keep interest rates unchanged at its policy meeting later this week.

Citibank economist Giada Giani said, “Despite renewed tension in the Middle East and rising oil prices, it is still slightly below the June benchmark assumption, and signs of a second round of impact are still limited.”

According to a survey released by the European Central Bank on Monday, Eurozone companies expect sales price increases to be moderate, and wage growth will slow. This further shows that the recent surge in energy-driven inflation has yet to cause a second round of price shocks.

Société Générale said, “The price of crude oil is still far below the spring high, but the price of refined oil products is showing a different trend. The price trend of diesel and gasoline seems to have reached 110 to 120 US dollars per barrel.”

“As far as the ECB is concerned, one thing that can be relieved is that crude oil is still the core driver of this round of rising prices. Although gas and electricity prices are also slowly rising, they have not yet become the main source of inflationary pressure.”

The yield on Italian 10-year treasury bonds rose 1.5 basis points to 3.96%.

The yield difference between 10-year Italian bonds and German treasury bonds is 80 basis points. Before Iran was attacked in February, the spread was 63 basis points, but by the end of March it reached 103.62 basis points, the biggest difference since June 2025. According to reports, this spread is a key indicator for measuring financial market risk, market sentiment, and risk of “fragmentation” in the Eurozone.