Germany's 10-year bond yield hits three-week low on Hormuz deal optimism
TLT•Markets scale back ECB tightening expectations
Falling energy prices have softened worries about higher inflation and a slowdown in growth, and helped reduce expectations for further policy tightening from the European Central Bank.
Futures markets are now pricing in just 35 bps of tightening from the ECB by the end of the year, implying one more quarter-point hike and around a 40% chance of a second.
On Friday, investors had been pricing in around 44 bps of tightening this year.
Germany's two-year yield DE2YT=RR, which is sensitive to changes in ECB policy expectations, was last down 2 bps at 2.696%.
The ECB in June became the first major central bank to tighten policy since the outbreak of the war but kept interest rates on hold last month.
Euro zone bond yields fall on oil-price and inflation optimism
LONDON, August 5 (Reuters) - Euro zone bond yields fell for a third consecutive day on Wednesday as falling oil prices, driven by optimism over a potential U.S.-Iran deal to reopen the Strait of Hormuz, eased inflation concerns.
U.S. President Donald Trump said that the U.S. and Iran were having "very good discussions", fuelling expectations of an end to the five-month conflict that has severely disrupted energy supplies from the Middle East.
Growing confidence that a deal can be reached has pushed Brent futures LCOc1 below $79 per barrel to their lowest in over three weeks.
"Bond markets are focused on prospects for a deal with Iran and reopening of the Strait of Hormuz," said Hauke Siemssen, a rates strategist at Commerzbank.
"The bullish backdrop looks set to remain intact today."
Germany's 10-year yield DE10YT=RR, the euro zone benchmark, was last down 2.5 basis points (bps) at 3.09%, its lowest since July 15. Bond yields move inversely with prices.
