Germany's 10-year bond yield touches three-week low on Hormuz deal optimism

Investors trim ECB hike expectations Bond yields following oil price movements German 10-year yield hits lowest since July 15 * Updates prices By Samuel Indyk LONDON, Aug 5 (Reuters) - Germany's 10-year government bond yield fell for a third consecutive day on Wednesday, driven by optimism over a potential U.S.-Iran deal to reopen the Strait of Hormuz. U.S. President Donald Trump said that the U.S. and Iran were having "very good discussions", fuelling hopes 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 pushed Brent crude oil futures LCOc1 to around $78 per barrel to Wednesday, their lowest in more than three weeks. Yet senior Iranian and regional sources told Reuters that important details still had to be agreed, pushing back against assertions by Trump that a deal reopening the strait was imminent. "Yields are just following what's happening with the oil market," said Mohit Kumar, chief economist Europe at Jefferies. "In July, you had a massive rally in oil and yields rose. Now oil is coming off, so yields are coming off as well." Germany's 10-year yield DE10YT=RR, the euro zone benchmark, was last down 1 basis point (bp) at 3.104%, after earlier hitting its lowest since July 15 at 3.089%. Bond yields move inversely to prices. LESS TIGHTENING FROM ECB? The European Central Bank in June became the first major central bank to tighten policy since the start of the war in February, but kept interest rates on hold last month, signalling that it needed more time to assess the impact of the energy price spike. Policymakers are watching for signs of second-round effects, where higher energy prices feed into wages and the cost of other goods and services, making inflation more entrenched. Inflation in the 21 nations that share the euro currency ticked up to 2.9% in July, data showed last week. But falling energy prices this week have softened worries about higher inflation and a slowdown in growth, and helped reduce expectations for further policy tightening from the ECB. Futures markets are now pricing in roughly 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 2-year yield DE2YT=RR, which is sensitive to changes in ECB policy expectations, was little changed on Wednesday at 2.718% after earlier falling to 2.695%, its lowest since July 13.

Germany's 10-year bond yield touches three-week low on Hormuz deal optimism

Germany 10-year yield falls on Hormuz deal optimism

ECB tightening expectations ease as energy prices fall

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