Euro zone bond yields stay near 15-year highs as Iran war fears persist

Euro zone benchmark government bond yields held near their highest levels in over 15 years on Monday, as investors grew increasingly concerned that a prolonged conflict in the Middle East could make inflation more persistent.

Germany's 10-year Bund yield was steady at 3.20%, close to the 3.2118% level touched in late July — the highest since May 2011. The yield on Germany's two-year bonds, which are more sensitive to interest rate expectations, remained roughly unchanged at 2.79%.

The tensions come as Iran urged the United States to accept defeat over the weekend, while President Donald Trump described Tehran as "very evil" and warned Americans to expect continued high fuel prices as a result of the war.

Money markets are now pricing in a European Central Bank deposit rate of 2.76% by March 2027, up from the current 2.25%. They also imply a more than 90% chance of a rate hike in September.

However, some analysts believe the ECB may not need to go much further. Mohit Kumar, an economist at Jefferies, said he sees at most one hike from the central bank. "Oil prices are currently lower than any of the adverse scenarios that the ECB presented in June and there is no need to deliver a series of hikes," he added.

The yield gap between 10-year Italian government bonds and their German counterparts stood at 77 basis points. That spread was 63 basis points in February before the attack on Iran, and widened to 103.62 basis points in late March — the widest since June 2025.