German short-dated yields set for weekly rise despite fall in oil prices
TLT•German bond yields edge higher as inflation concerns linger
Policy-sensitive German short-dated government bond yields were set to end the week higher, despite a decline in oil prices, as investors remained concerned about persistent long-term inflation pressures.
Oil prices fell on Friday and are on track to snap a two-week rising streak following a report that U.S. President Donald Trump is not interested in returning to previous deal terms with Iran.
Investors were expected to remain on the sidelines ahead of Federal Reserve Chair Kevin Warsh's first speech at the Jackson Hole Economic Policy Symposium at 1400 GMT.
German two-year bond yields DE2YT=RR rose 2 basis points (bps) to 2.86% and were on course for a 4-bps weekly rise.
Traders were pricing the European Central Bank's deposit rate at 2.80% by March next year, up from the current 2.25%. By late 2027, markets saw the deposit rate at 2.90%, not far from the levels seen early this week, implying roughly a 60% probability of an ECB hike to 3%.
Germany's 10-year bond yield DE10YT=RR was up 2 bps at 3.27% and set to end the week up 1.5 bps.
The yield gap between Italian government bonds and Bunds DE10IT10=RR was at 82 bps.
The French spread DE10FR10=RR was at 85.5 bps after hitting 86.60 bps on Monday, its highest since November 2024, as France faces a particularly perilous annual budget battle in the coming months.
