Euro zone bond yields rise amid caution over potential US-Iran deal

FE Team | Published: June 01, 2026 23:01:39

Euro area government bond yields rose on Monday as investors stayed wary of a potential US-Iran deal to reopen the Strait of Hormuz, a development that could ease inflation pressures and reduce expectations for European Central Bank tightening, reports Reuters.
Borrowing costs tracked moves in oil prices - which were up 2.5 per cent on Monday, but still below $95 - seen as a proxy for future inflation.
The US said it struck Iranian military sites at the weekend and Iran's Revolutionary Guards said on Monday they had targeted a US base in response, but President Donald Trump reiterated that Iran really wanted to make a deal.
Money markets are pricing the ECB deposit rate at 2.60 per cent by December , up from the current 2 per cent and slightly above the 2.53 per cent level priced in on Friday. They also indicated about an 80 per cent chance of a first rise this month.
"A jaded cynicism has come over investors, and in the absence of a definite statement from Iran there is a tendency to downplay comments from the US administration," Paul Donovan, chief economist at UBS Global Wealth Management, said.
Germany's 2-year yields, more sensitive to expectations for policy rates, rose 6 basis points to 2.59 per cent. They reached 2.771 per cent in late March, the highest since July 2024.
"Ultimately, hopes prevail that a possible framework agreement will pave the way for gradually normalising traffic in the Strait of Hormuz," Rainer Guntermann, economist at Commerzbank, said.
Investors are also monitoring macroeconomic data for early signs of how the energy shock is affecting the economy, while waiting for next week's ECB policy meeting.
Inflation in the euro zone's four largest economies hovered above the ECB's 2 per cent target for a third straight month in May, preliminary data showed on Friday.
Meanwhile, growth in manufacturing lost momentum in May as demand for goods stagnated and supply-chain disruptions linked to the Middle East war pushed input costs to their highest in four years.
Germany's 10-year government bond yield, the euro area's benchmark, was up 5 bps at 2.98 per cent. It reached 3.13 per cent in late March, its highest level since June 2011.
Italy's 10-year government bond yields rose 6 bps to 3.71 per cent.