Bund yields climb with oil as investors wait for US midterm results

what happened

Reuters reports that euro zone benchmark Bund yields rose on Tuesday, recovering from the lowest level since August 31 seen a day earlier, as oil prices moved higher. Brent gained 1.5% after a report that the United States struck Iran's Qeshm Island. Oil had dropped sharply the previous day as talks between Iranian and Qatari officials raised hopes of a negotiated way out of the conflict.

Investors remained cautious ahead of the US midterm elections. Polls and analysts suggest Democrats are on course to retake the House, while the Senate race is finely balanced. Commerzbank says Democratic control of Congress would limit the scope for additional fiscal stimulus.

Two-year German yields, which are more sensitive to policy rate expectations, rose 2.5 basis points to 3.04%. Euro short-term rate forwards imply a deposit rate of 2.73% by December 2026, compared with the current 2.50%.

why it matters

Higher yields mean lower Bund prices, and markets are still pricing in ECB rate hikes. Further moves will depend on oil, geopolitics and the outcome of the US elections.

market impact

Euro zone bonds: rising yields pressure Bund prices; oil: geopolitical risk supports Brent

• ▼Bunds (German government bonds) pressure down — higher 10-year yields lower the price of the bonds
• ▲Brent pressure up — the reported US strike on Iran's Qeshm Island raised geopolitical risk premium

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instruments