German Bund yields higher after AfD win, before ECB meeting
TLT•ECB rate-hike expectations remain firm
The ECB is widely expected to hike interest rates on Thursday, erring on the side of caution as the U.S.-Iran war drags on, keeping oil prices high and raising inflation again.
Germany's 10-year bond yield DE10YT=RR was up 1.5 basis points (bps) at 3.35%. Last week, it hit 3.3951%, the highest since April 2011.
"The impact on Bunds or Länder bonds looks set to be marginal," said Rainer Guntermann, strategist at Commerzbank, referring to the election result.
"If anything, it should be negative, given that the infighting within the federal government after the poor showing of the CDU and SPD will complicate the implementation of reform plans for the rest of the year."
German two-year bond yields DE2YT=RR were up 2 basis points (bps) at 2.95%.
Italian yields rise as Bund spread holds
Italy’s 10-year government bond yields rose 3.5 bps to 4.18%. The yield gap versus safe-haven Bunds was at 80.50 bps.
Markets price a higher terminal ECB rate
Traders were pricing the European Central Bank's deposit rate at 2.72% by December, implying a roughly 90% probability of a second rate hike after the widely expected increase later this month, from the current 2.25%.
Markets continued to build momentum towards a terminal 3%, with the policy rate last seen at 3.01% by September 2027.
The ECB will raise interest rates on September 10 for the second and final time in what would be its shortest hiking campaign in 15 years, according to a Reuters poll.
