Bund yields set for weekly drop, traders slightly scale back bets on ECB hikes

Germany's 10-year bond yield was up 0.5 basis points at 3.49% after reaching 3.5723% on Tuesday, the highest since June 2009. It was on track for a 2-bp weekly drop.

Some analysts said that expectations for rate hikes had gone too far, arguing higher energy prices were likely to weigh on growth and help dampen inflation and expectations for monetary tightening.

Energy prices remained in focus, with Brent crude futures falling for a third day as concerns over Saudi supply disruptions eased.

Money markets priced the ECB's deposit rate at 2.86% by December, up from 2.50% currently and implying almost a 50% chance of a second hike by year-end. By November 2027, rates were seen at 3.39%, compared with 3.55% on Monday.

German two-year bond yields, more sensitive to policy rates, were flat at 3.23%, after reaching 3.3123% on Monday, the highest since September 2023. They were on track for a 5-bp rise.