Euro zone government bond yields rise as US-Iran talks stall

A surge in oil prices and escalating Middle East tensions have boosted expectations for additional European Central Bank rate hikes, pushing euro zone bond yields higher as investors brace for renewed inflation risks.

June 03, 2026

Stefano Rebaudo/Reuters

Euro zone government bond yields rise as US-Iran talks stall

FILE PHOTO: Dark clouds are seen over the building of the European Central Bank (ECB) in Frankfurt, Germany, June 6, 2024.

Wolfgang Rattay/Reuters

Euro zone government bond yields rose on Wednesday, with traders now pricing in a more than 50% chance of three European Central Bank rate hikes by year-end as hostilities flared in the Middle East and U.S.-Iran peace talks stalled.

Investors were sceptical about the prospect of a quick U.S.–Iran deal that could lead to the reopening of the Strait of Hormuz, a move that would likely ease inflationary pressures.

Oil prices rose for a third day running to a one-week high on Wednesday.

Money markets are pricing the ECB deposit rate at 2.67 % by December EURESTECBM5X6=ICAP, which implies two rate hikes and an about 65% chance of a third move. They also indicated a 90% chance of a first rise this month. EURESTECBM1X2=ICAP

Germany’s 2-year yields <DE2YT=RR>, more sensitive to expectations for policy rates, rose 3 basis points to 2.65%. They reached 2.771% in late March, the highest since July 2024.

Investors are also monitoring macroeconomic data for early signs of how the energy shock is affecting the economy.

Germany’s 10-year government bond yield <DE10YT=RR>, the euro area’s benchmark, was up 2.5 bps at 3.00%. It reached 3.13% in late March, its highest level since June 2011.

Italy’s 10-year government bond yields <IT10YT=RR> rose 3 bps to 3.73%.

The yield gap of Italian government bonds versus bunds <DE10IT10=RR> was at 70 bps. It was at 63 bps before the attack on Iran and hit 103.62 in late March, the highest level since June 2025.

-Stefano Rebaudo/Reuters